Manufacturing in China during the Year of the Snake
By Tim Hanley - February 21, 2013
In late January, I traveled back to China for a series of client meetings. My visit was coordinated to join a group of Deloitte partners from our member firms in the U.S., Germany, and Japan as part of a week-long program to take a closer look into the local automotive industry. Each time that I return to the country, I learn something new about this dynamic and changing market.
At the close of the Year of the Dragon – viewed by many Chinese as extremely prosperous – indices appear to signal a mild recovery for China’s manufacturing industry. For example, the HSBC China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, rose to 52.3 in January 2013, up from 51.5 in December 2012. Indeed, the Deloitte China partners and various clients that I met with seemed cautiously hopeful that this pick-up in activity will continue into the New Year and that the Year of the Snake will bring improved domestic conditions in China.
Business investment into China is expected to hold steady and it certainly appears that China continues to be an attractive market for manufacturers. Deloitte Touche Tohmatsu Limited’s (DTTL) 2013 Global Manufacturing Competitiveness Index once again shows China as the most competitive country in the view of top manufacturing executives. In addition, nearly 8 in 10 business leaders surveyed for the report viewed China as competitive with respect to local business attractiveness in terms of size and access to a vibrant domestic consumer base with significant spending power.
The automotive sector is just one example of an expanding domestic industry and clearly visible during my visit to a number of automotive clients. Automotive sales (including passenger and commercial vehicles) in China rose 4.3 percent to 19.3 million units last year, according to the China Association of Auto Manufacturers. The association forecasts sales this year to increase by 7 percent. China’s growing automotive market, which some predict will reach 25 million units by 2020, continues to attract investment interest from foreign car companies looking to gain a stronger foothold and access to the local market.
Chinese manufacturers are investing in innovation. One of the new places that I had the opportunity to visit was Hangzhou, which is the capital and largest city of the Zhejiang Province in Eastern China. Because of its location on the Yangtze River Delta, which provides an important logistics hub for the east coast of China, this fast-growing industrial city is home to a number of automotive manufacturers and suppliers, as well as chemicals, textile, heavy equipment, household electrical appliances, and electronics manufacturers. In Hangzhou, we had the opportunity to meet with a couple of automotive original equipment manufacturers and suppliers who are quickly growing their presence across the globe and making strategic investments in innovation to deliver new vehicles to the global marketplace. These investments are just an example of how China is moving away from competing just on cost to developing capabilities to play in advanced manufacturing areas.
We left China with a much deeper insight view of the changing landscape and I am already looking forward to my next trip. There certainly is no doubt that what happens in China impacts our clients everywhere. Companies are assessing their China investment strategy and sorting out how China fits into their increasingly global supply chains.
DTTL Global Leader, Manufacturing
Tim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 32-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.