By Reid Kirchenbauer
This year has seen a decline in the growth of the Chinese economy, a cause that analysts believe to be the main driver of 2015's global economic slowdown. The world's largest economy's GDP growth rate has declined to 6.9%, according to the most recent quarter's reports.
Among the reasons given for the weaker growth are disappointing trade and manufacturing. China's manufacturing activity has hit a 3-year low, while Japan's is rising at the fastest pace since over a year.
In the latest report from China, manufacturing activity across most major companies has taken a nosedive in November. This is believed to be a direct result of the global economic slowdown.
China's National Bureau of Statistics announced that the nation's official Purchasing Managers Index (PMI), the measurement of activity of major companies, has fallen to its lowest point since August 2012. Any reading under 50 shows a contraction in the manufacturing sector, and China has seen a constant drop in the last four months, with the latest number reported at 49.6.
This figure was below what most analysts expected, even though they had taken into account the mounting pressure on local manufacturers from falling exports, which all contributed to the economy's slower growth.
Due to falling exports, the government hoped that domestic demand would rise to offset it. However, the latest statistics show that the local demand is also falling, even though not as fast.
A Stronger Japanese Economy
While China is not doing very well, the Japanese economy is seeing its sharpest increase in manufacturing activity in a while. A preliminary factory survey revealed that the growth in exports also contributed heavily to the rise in manufacturing activity.
The Nikkei PMI was reported to be at 52.8 in November, up 0.4 points from the previous month. The index takes into account many factors, but mostly exports, employment rate, inventory backlog and prices.
According to the PMI report, it is to be expected that the growth rate of the Japan economy will be on the rise again due to increasing exports and decreasing inventory backlogs, after suffering from two months of negative GDP growth this year. It finally seems that the Japanese manufacturing sector has gotten over the effects of China's slowing economy.
Still Hope for China
Even though China seems to be in a very dire place, there is still hope for a recovery. Its manufacturing activity may be at a 3-year low, but the activity of smaller companies is increasing. A separate PMI meant for smaller companies reported a marked increase for the second month in a row.
Despite overall declining exports, those specific to the smaller companies have seen an increase at the fastest pace in over a year. Caixin Insight Group, the party responsible for compiling the index, revealed that the layoff rate for workers has dropped as well.
Greater China analysts at ANZ Bank in Hong Kong also commented that even though profits for most Chinese companies are taking a turn for the worse, profits from a few sectors are very promising.
These sectors are those that reap in high profit margins already, such as high-tech equipment manufacturing. The non-manufacturing sector is also seeing a large increase, with sectors with services and construction expanding a lot faster than the previous month, now at 58.1 as compared to last month's 52.8.