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Is China Unstoppable? American Manufacturing Must Compete

In Forbes, James Crean explains why China’s Smart Factory Technology in manufacturing has kept them ahead, and why America needs to keep up.

If Trump Measures Success In Stock Market Gains, Then China’s Winning

Is China unstoppable?

They’re being pitted against Trump in the November election and, oddly, or not, one side really wants them to win. They’re being pitted against the U.S. in the battle against the coronavirus and, obviously, China is ahead. Call their numbers fake, the fact is that China is open for business, the U.S. is still mostly closed.

As a stock investment, the China A-shares market is down 0.3% year-to-date. The S&P 500 is down 3.5%. MSCI China is up 4.42%. China tech stocks, as measured by the KraneShares China Internet (KWEB) fund, is up 30% year-to-date, more than double that of the Nasdaq NDAQ -0.3%. Trump likes to measure things in terms of stock market gains. China’s winning.

From a public health perspective, China has flattened the coronavirus curve.

The “second wave” narrative is just that: a narrative published on Bloomberg and in the FT. The roughly 150 cases in Beijing is not a second wave. China’s capital never had a first wave. Nearly all of the deaths and hospital saturation occurred in Hubei province.

Fiscal and monetary stimulus, while incremental, remains supportive. Interest rates remain positive and are tracking the Fed. China’s central bank has more room to maneuver, however, as interest rates there are higher.

Turning to the private sector, many innovative sectors within China continue to experience rapid growth. As Beijing looks around — it sees 1.4 billion people and realizes it has a market three times larger than the U.S. that it can build widgets and services for, regardless of export markets, its former growth engine.

Reflecting both the health of China’s economy and a faster resumption of daily activities, local sentiment has been more optimistic in China than global sentiment.

Near-term risks to China’s economy remain.

China is at risk of the U.S. decoupling some of its manufacturing from there, but China should be able to make up for those job losses by building things for local consumption.

Still, because of geopolitical risks, the pace of China’s recovery post-pandemic may be subject to fits and starts while the U.S. growth is more of a straight line, assuming some reallocation of resources back to the U.S. on national security grounds: think pharmacological inputs, for example.

Taking a longer-term view, investors will find more opportunities in China than anywhere else in Asia. There will also be more room for Western firms to scour the landscape for legit companies that follow the rules, and are not going to be subject to IP theft claims, or accounting fraud, for example.

The sectors everyone likes in China at the moment all revolve around consumer services and anything high tech and innovative.

Many innovative manufacturing companies are thriving by competing on intellectual property, brand loyalty and providing superior products and services in a just-in-time fashion.

Smart factories are another thing.

“China has been adopting smart factories for years and they are ahead of us on this,” says James Crean founder and president of CREAN Inc, a smart factor tech and consulting firm. “The US has defaulted for too long on the notion that it is cheaper to make it in China. But smart factories can eliminate those costs. If the U.S. wants to compete with China on high end, custom made manufacturing, for example, then this is the way forward. Maybe one of the only ways forward.”

The pandemic is speeding up consumer behavior changes in China, as well as developing parts of Asia. Companies with strong organic structural growth tailwinds behind them have performed well despite the pandemic. China tech is a case in point.

“The same type of (China) companies have the potential to continue to outperform coming out of the crisis” says Michael Oh, a fund manager with Matthews Asia.

In February, a slowdown in the percentage rise in new virus cases, along with comprehensive policy action, helped stabilize sentiment within Chinese markets, especially the A-shares.

By April, Chinese equity prices rebounded as the economy began to reopen, tracking the S&P 500 in some sort of race between Xi and Trump. The pandemic accelerated some global trends, namely de-globalization, none in China’s favor, but China is ahead of the game in many respects due to its long term planning outlook and a captive home market.

Investors know China is in the cross hairs of Washington. Investor sentiment towards Chinese equity is generally positive, regardless. The reason is simple: business activity has resumed more quickly in China than here. In the Xi versus Trump race, Xi has a head start and Trump has a few people zig-zagging in front of him. In this race, he has some catching up to do.

CREAN, Inc., is an American company focused on helping businesses implement Smart Factory technologies that increase efficiency and profits. As an aerospace innovator with a passion for driving the implementation of Smart Factory technologies in the U.S., CREAN, Inc. supports some of the largest Fortune 100 companies in the world and works with entrepreneurs in engineering new innovative systems to produce them faster and more efficiently than competitors.