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A Surfeit of Production and Deficiency of Confidence

The Frost Feed: Market Intelligence | Commentary from Frost Investment Advisors  | June 17 , 2024

Easy Money Hangover: China Struggles and U.S. Consumer Sentiment Falls

The heart of the Chinese economy, the manufacturing sector, is struggling with excess capacity, swelling inventories and falling profits. Capacity utilization rates, compared to pre-pandemic averages, have fallen in 11 of 15 major industries. Industrial companies are in desperate straits, with 71% of the segment reporting that they were unprofitable last year as input costs rose and output prices fell. Even with electric vehicle production, where China leads the world in volume, several manufacturers are failing. Since the onset of the pandemic, industrial inventories have grown 39% while industrial production has grown only 24%. Efforts to export their way out of this predicament are causing a rising chorus of complaints from the U.S., European Union and recently Latin America about China dumping cheap goods on global markets to the detriment of local industries.

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