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Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance
At present, with the well-organized advancement of the reform on supply front, China has seen its economic reform step into great depths. On the one hand, some industries, entering into the phase of eliminating overcapacity, started to show a declined production but stable quality; on the other hand, emerging industries remain at the primary stage of development, performing relatively weak in technology maturity, market development ability and financing demands. It takes time for an overall economic recovery. As the most important micro link in macroeconomic operation, small and micro-sized businesses still remain in difficulty at present. But different from big-enterprise clusters, they shall consider whether they can survive the economic transformation rather than grow or not. Therefore, our greatest expectation for the annual industry development is that with the implementation of reform policy, industries meeting national strategic planning and relevant outstanding enterprises in small and micro-sized economy will gradually be stabilized and embark a new road of growth.
Since February, the main economic indicators are operating at a low level. According to the data released by the National Bureau of Statistics on March 1, PMI (Purchase Management Index) in China reported 49.0, lower than 49.4 of the last month and below the purchasing managers’ index for consecutive seven months, being the record low since August 2012. Caixin Manufacturing PMI in China stood at 48, lower than 48.4 of the last month. But a relatively optimistic expectation is that economic operation seems to show signs of recovery. In February, as almost all workers of enterprises returned to their hometowns, some companies reduced or even suspended their production. As a result, the manufacturing industry took on an overall decline and the individual enterprises saw their operating income on the continue decrease. However, with the influence of spring festival holidays deducted, the downtrend of actual macro data has obviously slowed down, from which a stabilized and recovering economy can be expected. On the other hand, the global economic slowdown adds uncertainties to the recovery of China’s economy. The exports due to insufficient external demands keep declining, and the depreciated Renminbi can do little good to the exports. In the meantime, it is hard for domestic demand to increase markedly. Therefore, it is quite difficult to predict when the overall recovery of economy will come.
In February, “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”) posted 46.1, a slight decrease of 0.3%, indicating that small and micro-sized economic entities face challenges while seeking for growth. Of SMEOI, the market index reported 43.2, a decrease of 0.5 point over the last month; the purchasing index 45.3, a decrease of 0.3 point; the performance index 45.4, a decrease of 0.3 point; and the expansion index is 45.5, a decrease of 0.4 point. It can be seen that the indexes involving production and market operation declined greatly. This is because small and micro-sized economy, the weakest link of the Chinese economy, as the rapid economic downturn comes to an end, may react unduly. The reaction may be a superposition of effects in the past time, or a prediction of the coming trend in the next stage. But the confidence index of the month was recorded 47.4, an increase of 0.2 point; the risk index 52.2, an increase of 0.7 point; the cost index 63.0, an increase of 0.8% point. It can be seen that the confidence of market players is changing in the process of overall decline of small and micro-sized economy and the rising risk index and cost index also evidence the expansion expectation of production and operation.
Certainly, right before the macro economy stabilizes and picks up, the overall decline of small and micro-sized economy develops into the most severe period. SMEOI by region in the month showed overall decline. Northeast China witnessed the largest decline of 0.5 point to 43.9, far lower than the critical value. The drop of other regions ranged between 0.1 and 0.4 point. At present, how to stabilize their growth has become a critical task for small and micro-sized economy in the process of economic structure adjustment.
From the current policy orientation, investment in various infrastructure projects has constituted the major part of the total investment. The positive fiscal policies designed to stabilize economic growth are taking effect. Meanwhile, with the issuance of measures like lowering the deposit reserve ratio, financing resources become more accessible to companies, but possible easy monetary policy will impose pressure on RMB exchange rate. In addition, the pressure of capital outflow may drive down funds outstanding for foreign exchange, and thus inducing the expectation for lowering the deposit reserve rate again. It certainly needs further observation.
At present, among in the small and micro-sized economic entities, the performance of consumption-related fields, especially online consumption, are satisfactory but the links related to the manufacturing industry face great downturn pressure. From policy orientation, with fiscal expenditures exceeding revenues continuously, the space for keeping tax reduction is actually reduced. So small and micro-sized economic entities shall be given more new supply and direct financing, so that they can build up innovative production capacity and conduct de-leveraging and de-stocking for outdated production capacity. Specifically, on the one hand, zombie enterprises will be required to dispose of assets and restructure debts; on the other hand, it is the right time to increase investment in and purchase from the policy supporting industries through reform measures.