Why China’s manufacturing has not collapsed

New data from the Caixin/Markit Manufacturing Purchasing Managers’ Index(PMI), a private survey of businesses and state-owned enterprises in China, revealed that the country’s manufacturing expanded in November at its fastest pace within three years. Putting the index at 51.8, the result indicates growth in the sector, which beat more pessimistic projections from organizations such as Bloomberg. It stated this result indicated “solid increases” in output, new business and stable employment levels.

The news comes amid trade talks between China and the United States to secure a “phase one” trade agreement, which appears to have some realistic prospects. However it also comes amid pending tariffs by the White House scheduled for December 15. Nevertheless, the news is positive and comes amid persistently negative coverage of China’s economic prospects in the Western media.

What does this news prove? The trade war, as some American policymakers hoped, has not decimated China’s economy or run it into the verge of collapse, nor have manufacturers departed the country in droves. Instead, China’s enterprises and manufacturers are clearly adapting to live in the new environment. Through good business instinct, combined with shrewd diplomacy from Beijing, China’s businesses not only have the safeguard of a giant domestic market, but also succeeded in securing new markets overseas whilst broadening existing ones. The Western media are not giving adequate coverage to how China has mitigated some of the damage of the trade war.

American policymakers inaccurately seem to believe that China owes all of its economic success to the United States, and consequentially if those benefits are “taken away” Beijing will implode quickly. This has been the genuine strategic thinking of individuals such as Peter Navarro and other White House hawks. They claim, as well as many supporters of the administration on social media, that “We built China!” and thus without American backing the country is doomed to fail. In accordance with this, Trump has persistently made false statements that “Millions of jobs are leaving China.”

Whilst of course, a stable economic relationship with the United States is important for China, nevertheless, America has persistently overestimated its own hand. Beijing’s economy has been strained by the tariffs and uncertainty, but it has not come close to collapsing.

First of all, it is repeatedly ignored that China’s own domestic consumer market, which is bigger than America’s, means many businesses and manufacturers “continue to be in China, for China.” This market is continuing to grow in size and scope. In the long run, the US proportion is only going to become smaller and smaller.

Secondly, the expansion of China’s overseas markets could well mitigate the damage caused by the trade war. Since 2018, China has entered into a free trade agreement with the Eurasian Union, has upgraded its free trade agreements with Singapore, New Zealand and Pakistan, a new agreement with Mauritius and this week opened dialogue for a FTA with Cambodia. As US prospects have diminished, it has hedged elsewhere whilst Trump has continued to slap tariffs on more and more countries, including Brazil and Argentina in this week. In addition, according to a recent article published by the South China Morning Post, China has increased its exports to Belt and Road countries, as well as Africa this year, which can make up for some of the fall in US demand.

Given this, China’s manufacturing is not doomed. Whilst pending tariffs will of course be disruptive and the desire to stabilize trade relations with Washington remains a priority and this will continue to cause some business uncertainty, American policymakers have overestimated the impact they can have and assumed that China is still small enough to be put into a box – well, it isn’t.

Thus anyone who recognized these factors and looked beyond the mainstream media narratives would not be surprised by the expansion in manufacturing. Regardless of what happens between Washington and Beijing in the short term, China’s opportunities are only going to expand in the long term. The trade war is simply not going to produce the fabled collapse that some have hoped for. In this case, Beijing deserves a lot more credit in its ability to have strategically navigate and hedge its way through disruptions such as this.