2013: How Will China's Economy Affect American Businesses?

While many countries today would envy a 7.4 percent economic expansion rate, for China, the world’s second largest economy and the United States' second largest trade partner, that number suggests the lowest economic growth rate in thirteen years. Even if an American business does not deal directly with exports and imports from China, they want to know how the current state of China's economy will impact them because China has become an integral part of business logistics throughout the U.S. It's nearly impossible to find a business that can function independently of Chinese influence. 

Manufacturing Sector:

China’s manufacturing sector consists of numerous industries that are engaged in the physical transformation of raw materials into consumer or industrial goods. Raw materials and labor come cheap in China and so for many multinational corporations it is highly efficient and cost effective to keep manufacturing production overseas. For example, American corporations like Nike and Apple manufacture several of their products in China and then export to the United States and elsewhere. However, in 2012 China’s manufacturing sector took a hard hit due to a global slowdown in demand. Nevertheless in January 2013, China’s official Purchasing Managers’ Index (PMI) stood at 50.6. This PMI is an indicator to many analysts that the manufacturing industry in China is on the rebound. While this suggests that China’s economy is excelling, it also suggests the same of the United States. An increase in demand for production of consumer goods abroad also suggests an increase in consumer activity stateside.

Construction Sector:

Similar to the manufacturing PMI, the non-manufacturing PMI inched to fifty-six point two (56.2) in January 2013, indicating a point one (.1) increase over the December 2012 PMI. It is important to note that much of China’s expansion in the past three months was due to the Chinese government’s increased spending on infrastructure products, such as road and railroad constructions. Moreover, China’s residential property market has also experienced moderate growth in the past year, while the demand for commercial property has declined. Nevertheless, many analysts foresee that both industries will continue to enjoy moderate growth in 2013. This should not come as a surprise as China’s services and construction sectors accounts for 43 percent of the country’s overall economy.

Retail Sector

In January 2013 the Chinese government released economic data that indicated China’s retail sales increased by 14.9 percent during November 2012—the highest increase over the previous eight months. This too should come as no surprise, as many foreign consumer companies are attracted to profit-growth opportunities in China’s urban centers. Foreign-based retailers such as Louis Vuitton and Coach have established thriving businesses in China. It also allows room for investments from American corporate retailers to come full circle by providing profit sharing opportunities among their stockholders.

Notwithstanding, there are mixed reviews from foreign retailers that have established store(s) in China. For example, in September 2012, Nike said that its China sales were weakening and had decreased 6 percent from the prior year.  Also, in September 2012 the Home Depot announced that it would be closing all its stores in China. Conversely, Coach, a luxury retailer specializing in shoes and handbags, continued to do well in China. So well that its goal is set for China to become its number one market in the next three years.

The Future

Given China’s slowing economic expansion, the government has accelerated investment project approvals, trimmed fees for exporters, and increased spending on infrastructure. For the United States, this translates to economic opportunity and advancement in profit growth. Even with a hiccup of production activity, economists continue to encourage businesses and individuals alike to invest in China. The international attorneys of Diaz Reus recognize the investment opportunities in China and are eager to help their clients and offer legal assistance to investors and companies who are interested in China.