Slowdown in China’s Industrial Output

We are tracking output and imports in China closely. We are also tracking energy consumption.

Most of the key metrics have flattened or are down, but China is still on track to have GDP growth of 8-10% in 2010.

A key industry for China is automobiles, and the monthly vehicle production is shown in the attached table. There has been a steady decline since the record high of 1.734M automobiles in March 2010, and even with output reduced to 1.286M in July 2010, inventory is high at car dealerships. Incentives are being given, but sales have slowed. One of the main reasons is the roads, especially in the large cities where the affluent consumers are located, are very crowded. Beijing is again imposing control over when drivers can drive in the city.

There is expansion of automobile manufacturing capacity, ie, Volkswagen, Nissan, and others. The result is overcapacity, and automobile factories that do not run at high levels of capacity utilization are high cost. While China does not have high costs in reducing its labor force, there are still high costs associated with running automobile factories. In addition to the automobile factories, the entire supply chain has to be managed. How China manages the automobile industry in the next 12-24 months will be a key test of management skills.

Longer term, the key emphasis will be on exports, but this strategy will take time to implement. The acquisition of the Volvo business by Geely is an early indicator of changes in strategies.

Similar approaches are being taken in the television business where exports are already starting to build rapidly.

China manufacturing and sales strategies are going through big changes, with a potentially big impact on a number of global industries.

Posted in Blog | Leave a comment

How to Buy the Book

Chinamerica: The uneasy partnership that will change the world is available at leading brick-and-mortar and online bookstores. Click any of the following links to order the book now:

Posted in Blog | Leave a comment