China's Slowdown Continues

Includes: GXC
by: Lamarcus R. Coleman

China just reported that its manufacturing grew at a slower pace. Chinese PMI came in at 50.6 for April, just below estimates, and a 50.9 March reading. New orders, finished goods, and an index of new export orders all declined.

Slowing in China continues to weigh on local manufacturers. To cope with the slowdown, some manufacturers are moving operations to other Asian nations. U.S. firms are also beginning to scale back their operations in China. The rapid infusion of firms seeking cheap labor has driven wages up in what once was the harbor for reducing manufacturing costs. The costs of manufacturing employees has been increasing for the last decade. In 2002 the hourly wage rate in China was 4.74 Yuan or $0.57. By 2008, this had grown to 9.48 Yuan or $1.36.

Foreign Direct Investment has declined recently in China due to the global slowdown while exports continue to rise. China continues to import certain materials for manufacturing. A vast majority of China's manufacturing industry is state owned. As a result of this, the focus on output outweighed a focus on innovation and quality.

This recent report of slower manufacturing comes on the heels of a decline in GDP. As China's economy continues to mature, investors should expect slower growth. China will report its April Composite PMI on Sunday. Composite PMI rose to 53.5 in March versus 51.4 in February, while Services rose to 54.3 in March versus 52.1 in February.

A key opportunity exists in neighboring countries such as India. As China's economy continues to mature, manufacturing jobs will continue to leave and head to places like India, which can still offer cheaper labor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.