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Manufacturing sector provides strong support for China's economy

Chen Jiahe

Editor's note: Chen Jiahe is the chief investment officer at Novem Arcae Technologies. The article reflects the author's opinions and not necessarily the views of CGTN.

Over 20 years ago, when I was studying a course called "Development Economics" in Yorkshire, UK, I learned a very important lesson: while small economies can thrive by just focusing on a few economic sectors, a large economy that has hundreds of millions of people cannot. The healthy development of a large economy must be accomplished by a strong manufacturing sector.

For example, a small economy such as Singapore can develop very well just by focusing on a few sectors: finance, global trade and tourism. However, China is a very large economy. In order to grow its economy, China has to build a manufacturing sector that is really advanced to create enough jobs and produce enough GDP to develop this economy that now has 1.4 billion people.

The latest purchasing managers' index (PMI) published by the National Bureau of Statistics shows that the manufacturing sector of China is growing steadily. The latest manufacturing PMI of January came in at 49.2, the non-manufacturing business service index came in at 50.7 and the composite output PMI came in at 50.9, which are respectively 0.2 point, 0.3 point and 0.6 point higher than in December. (The 50-point mark separates expansion from contraction for PMI data.)

Looking into detailed industrial sectors, we can find the growth of China's manufacturing sector everywhere. This growth has not only supported the growth of the Chinese economy but also simultaneously provided solid support for the global economy.

Take the automobile industry as an example, in 2023 China produced a total of 30.2 million automobiles and sold 30.1 million. Both data points set new records. Compared with 2022, the automobiles produced and sold in China increased by 11.6 percent and 12 percent, respectively.

Furthermore, the automobile market in China is now well equipped with new energy vehicles, or NEVs. According to the observation of the legendary investor, Charlie Munger, NEVs made remarkable contributions to the air quality in cities, especially in metropolises. In 2023, the automobile industry in China produced 9.6 million NEVs and sold 9.5 million of them. At the same time, the air quality in many Chinese cities is now much better compared with 10 years ago.

In the nuclear power sector, China's manufacturing is also leading the global market. Currently, China's nuclear industry fully possesses the leading technology of the fourth generation of nuclear power reactors and the newly built nuclear power plants are all equipped with the latest technologies, which are also the safest.

For example, the technology – called "high-temperature gas-cooled reactor" – has been used in China's latest nuclear plants. The design of this kind of reactor enables the nuclear reactor to cool down even when the electricity is cut by unforeseeable accidents. Should this kind of reactor be employed, an accident in the scale of the Fukushima Nuclear Power Plant would be much less severe than it had been.

With the advanced technologies of the nuclear reactor, China's nuclear power industry grew steadily in 2023. The latest data released by China's two largest nuclear power companies, namely China National Nuclear Power and CNG Power, shows that the power they generated increased by 5.3 percent and 8 percent, respectively. The steady growth of nuclear power provides more green energy for China's economy and contributes significantly to the reduction of carbon emissions.

Another breakthrough in China's high-end manufacturing industry is the large passenger aircraft. For a long time, the global market of large passenger aircraft has been dominated by two large companies, namely Boeing and Airbus. In economics, this kind of market structure is called a duopoly and it is very easy for existing companies to make extraordinary profits from their customers, basically because a duopoly market lacks competition and customers do not have many choices.

With the hard work of Chinese engineers, China started its own large passenger aircraft program almost 20 years ago. In 2017, China's own large passenger aircraft, model number C919, took its first flight. At the beginning of 2023, the C919 received over 1,000 orders from 32 business clients. The successful delivery of C919 has provided an additional choice for global airline companies and created solid support to the growth of China's manufacturing sector.

The semiconductor industry is also a sub-sector of the overall manufacturing sector that has obtained remarkable progress in the past few years. As semiconductor products are used in many areas of the economy, such as industrial robots, home appliances, smart vehicles and so on, the demand for semiconductor products has increased dramatically alongside the growth of the Chinese economy. The total sale of semiconductor products in China increased from 789 billion yuan ($110 billion) in 2017 to 1.24 trillion yuan in 2022, with a compound annual growth rate of 12 percent. With this growth trend, the income of semiconductor companies, such as Semiconductor Manufacturing International, Hua Hong Semiconductor and Advanced Micro-Fabrication Equipment, has increased dramatically in the past few years.

Alongside the growth of China's manufacturing industry, the financial market has also played an important role. China's capital markets, such as venture capital and private equity investment markets, secondary equity markets and fixed-income markets, have contributed strongly to the financial requirements of manufacturing companies. As a result, successful manufacturing companies have also rewarded investors generously. For example, companies such as Gree Electric Appliances, Fuyao Glass Industry Group and Midea Group, have returned their stockholders with huge returns.

Overall, with the current growth trend of China's manufacturing sector, we will see more and more successful companies in the future. The hard work of China's manufacturing industry will generate strong support for the economies of China and the world, and the investors who find the right companies will also make their own fortunes.

(Cover via CFP)

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