China manufacturing on-the-rise, but investors should be wary

China’s manufacturing industry seems to be inching back towards positive territory, however the economic giant still has a long way to go if it is to regain its former top-spot in the global manufacturing stakes, according to reports.

The latest HSBC China Purchasing Managers Index outlook indicates a rise in April to 49.1 from March’s 48.3 PMI points, however according to Reuters, investors should be wary.

“Though not quite in expansionary territory, it’s enough of a recovery to suggest the downtrend is over,” said Reuters.

“Combined with ongoing solid demand for commodities, the gradual easing of some monetary restrictions, and a somewhat brighter picture from the rest of the world economy, it seems China is achieving exactly what it set out to do: slow the economy enough to temper inflation but not so much that it causes a hard landing.”

Confidence in China’s as the world’s top manufacturing giant began to slow in mid-2010 when the country’s PMI fell for the first time in 14 months.

The seasonally-adjusted HSBC China Manufacturing PMI recorded a fall to 50.4 in June 201, from 52.7 in May – which is just above the 50-point level separating expansion from contraction.

At the time, the manufacturing industry in China had grown at such a rapid rate that it was tipped to surpass manufacturing in the United States around 2013–14, according to a report from HIS Global Insight.

The report writers estimated that China’s manufacturing industry grew by 14% from 2007 to 2009, almost catching up with the US, which declined by over 8%.

The US made US$1.72 trillion in nominal manufacturing value in 2009, which China’s economy made $1.61 trillion.

Last year, China began to once again see competition for the top manufacturing spot from India, which looked in good stead to win back the share of global manufacturing business it lost to China during the latter’s boom period, following rising labour costs in China putting increasing pressure on employers.

India began to steal back some of its former business in the electrical goods, household goods, clocks and textiles sectors.

According to Reuters’ speculation about the latest China PMI report, investors should look at China’s steady decline for power as an ongoing trend.

"Western investors who constantly look for strong growth numbers out of China as a reason to push equity prices higher should be careful. If they get their wish, they won’t like the consequences for commodity prices, and for their own economies," said Reuters.