China's Purchasing Managers Index (PMI) dropped from 53.9 in May to 52.1 in June – the lowest level in 16 months – due largely to the Chinese authorities' stricter policy stance, climate changes such as flooding in the south, concern about possible bubbles in their real sector and anxiety toward the stability of the global economic recovery.
Over the remainder of this year, KResearch views that Chinese economy will likely continue to grow at slower pace, wherein 10-percent growth is likely to be seen overall for 2010, decreasing from the 11.9-percent growth (YoY) in 1Q10 due to many factors, such as global economic instability, particularly in G-3 markets –the most lucrative export markets globally – and economic deceleration at home caused by stricter measures to forestall economic overheating. It is expected that the exports of other countries including Thai exports to serve consumption and investment demand in China will likely decelerate after our exports surged 53.2 percent in 5M10.
Increases in minimum wage levels in China will likely benefit their economic restructuring programs over the long-run. Although higher wages will increase operational costs for the Chinese business sector over the short-term, it will accelerate the relocation of production bases from coastal provinces – the current economic center of China – to inland provinces where lower wage scales (coastal province wage levels are double that of inland regions) and lesser economic development exist. This will help improve income distribution toward inland populations.
Wage adjustments will help increase Chinese income levels overall, and would likewise increase their domestic consumption. Increased wages also help secure China's economic long-term growth. Higher turnover in the Chinese market would attract more foreign investors into their manufacturing sector to respond to increasing demand there.
Higher market value may turn to be a new strength of China, instead of the low wage that has played a significant role in drawing investment into China previously. Meanwhile, a stronger Yuan policy will spur domestic demand that should increase in line with higher purchasing power, so China's import demand, including from Thailand should increase too.