China’s once seemingly relentless industrial explosion is slowly diminishing. The Financial Times reported that in 2018, the country’s growth was at its slowest annual rate in almost three decades. Imports are down, jobs in the manufacturing sector are dropping, and trade dispute with the U.S. are further motivating uncertainty.

This year, Apple announced that slowing sales in Asia meant that the tech giant won't be able to meet sales expectations. Sharp falls in global stock markets ensued. When U.S. carmakers were hit with tariff disputes, they issued warnings in unison with a string of other companies, including Baidu, Jaguar, and Fiat Chrysler, among others.

While China’s current economic growth of 6.5% is still considered breakneck pace compared to any first world nations, it’s still a far cry from what it was for the past 20 odd years. It’s disconcerting news, but experts say that GDP growth will bottom out at around 6.1%, suggesting that the situation won’t deteriorate much further.

Why Things are Slowing Down

There are a number of factors that are pushing the world’s go-to assembly line nowhere but down - at least for now. Wage increases are a major reason. Coupled with the explosion of automated manufacturing processes, Chinese industrial firms are becoming a less desirable asset for investors.

China wants to move up the value chain, which means blue-collar manufacturing needs to be lower down in the hierarchy. With the decline of the Producer Price Index, Chinese manufacturers are losing their influence when it comes to pricing power. This results in inventory liquidation as Made in China products sell in lower numbers.

That said, China is still the only viable option for companies who want to get their products on assembly lines. Popular processes such as sheet metal fabrication and laser cutting services cannot be paid for elsewhere.

And there are still many sheet metal fabricators in China that prove to be the best solution for entrepreneurs who want an affordable and reliable way to enter the industry.

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Global Implications

Another thing to note is that China’s downwards-facing growth trajectory is becoming problematic for a number of other countries. As large and resourceful as it is, China still relies on other nations to import a variety of essential materials for its astronomical manufacturing needs.

In fact, 21% of China’s entire inventory is composed of industrial commodities like iron ore from Brazil and copper from Chile. China becomes interested in these commodities not only when price points are low, but also when growth outlooks are promising and lending conditions are ideal. Of course, this isn’t exactly the case right now.

The problem lies in the fact that China’s banks aren’t willing to alleviate the issue. At the moment, lending rates aren’t being cut aggressively enough to facilitate the necessary borrowing of money required to carry the cost of declining inventories and push manufacturers to keep sourcing overseas commodities.

From a logical standpoint, it doesn’t seem to make sense, but uncertainty is likely to blame. China’s banks probably can’t determine whether their borrowers will be able to make back a sufficient profit on their raw material purchases to avoid defaulting on loans.

Why it Matters

It’s not only Chilean copper and Brazilian iron companies that are suffering; nor is it just China. It’s the entire global economy, of which China holds position number two in terms of size. What’s happening now would have mattered less at the turn of the century, when China accounted for only 7% of global economic activity.

Today, that figure is set to be over double, at 19%. China’s industries are also closely integrated with global supply chains. This means that its economy is large enough to determine the global price of countless products. Around 50% of every piece of coal, copper, steel, and cement goes straight to China.

China is also responsible for a third of the world’s rice output and half for pork. Amidst uncertain economic times, China isn’t buying, which means the price of these commodities will fall. This disorderly decline pales in comparison to what any other country can do in terms of creating a major drag in the world’s economy.

But again, it’s worth noting that the current decline isn’t set in stone. Economists are looking at it more as a fall from the incredibly high levels that it was at in the last couple of decades, not one that will continue until it reaches zero.

Conclusion

Nobody is assuming that China’s economy will fall off a precipice. Only time will tell just how far it’ll go before things balance out, but this isn’t necessarily the end.