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Professor Guo Tianyong as School of Finance, Central University of Finance and Economics
In February, “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”) dropped slightly over the previous month. But there will be an extremely limited possibility for the index to further go down in the long run, as the early policies start to take effect. The Chinese economy may already see an obvious sign of hitting rock bottom and beginning recovery.
In the external environment, the US Federal Reserve announced to raise the interest rate on December 16, 2015, marking that the US economy officially began its recovery. Although Europe and Japan fall behind the United States in terms of economic growth, a gentle recovery has already taken shape. The trend of economic pickup as well as the subsequent policy changes will bring a certain impact on emerging markets including China.
Seen from the domestic macroeconomic situation, the multiple decisions of the People’s Bank of China (PBC) to cut reserve requirement ratio & interest rates, the accelerated RMB internationalization and the initial market-based operation of interest rates—all of these drive down the financing cost of companies and particularly small and micro-sized enterprises (SMEs), and contribute to a positive economic outlook in 2016; at the same time, a series of major policies are also expected to stabilize economic growth, which include adjustment to import and export tariffs, adjustment to pharmaceutical prices, local government debt swap programs, and rural and cross-border development of e-commerce.
In the short run, SMEs will still face some challenges, because they operate in high accord with the macro economy which is experiencing a downturn. In February 2016, the SMEOI stood at 46.1, down 0.3 point over the previous month, indicating that the operation of SMEs has not stabilized yet and shown a worrisome short-term outlook.
Among various indexes of different industries, the risk index and the confidence index are particularly noteworthy. The risk index of SMEs in the manufacturing industry stood at 51.8, an increase of 1.1 points; that in the construction industry reported 52.6, up by 0.4 point; that in the wholesale and retail industry reached 53.6, an increase of 0.3 point; that in the accommodation & catering industry posted 53.5, up by 0.7 point; and that in the service industry was recorded at 51.2, an increase of 1.6 points. According to the survey results, the turnover of working capital in other industries except the agriculture, forestry, animal husbandry and fishery has improved, the payback period of the manufacturing, construction, accommodation & catering and service industries has shortened, and the overall risk profile of all industries has grown better. Meanwhile, except the transportation and accommodation & catering industries, all other industries witnessed a rising confidence index, among which the agriculture, forestry, animal husbandry and fishery saw an increase of 1.1 points and the service industry 0.8 point. As shown by the above data, although SMEs face difficulties in their development currently, their cash flow has increased obviously compared to the previous month, and the risk profile has also been improved. The confidence index across the market is continuously rising.
Based on the above analysis, China’s current macroeconomic operation has obviously hit the rock bottom and been ready to recover; even so, microeconomic entities including SMEs still face operational problems and it will take more time for the current policies and measures to take effect. Therefore, during the de-leveraging progress, subsequent investment shall be made in emerging industries in time so that they can grow into the pillars of national economy. It is necessary to avoid reducing investment substantially. The Fifth Plenary Session of the 18th CPC Central Committee provides an important institutional support for economic transformation and innovation-driven development. In particular, the policies on innovating in and transforming investment structure, encouraging consumption and improving people’s livelihood will generate a substantial impact on SMEs’ hitting-bottom and even pickup in the next stage.