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Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance
Although the economy still operated downward in October, various types of data went down at a slowed pace and some industries and regions took on some signs of recovery, thanks to the powerful regulation of macro policies in more than half of the year. The features of the economy hitting the rock bottom have become increasingly obvious. Seen from the outside world, the European economy sees a narrowing downward possibility and the United States and the Southeast Asian countries have laid a solid foundation during their structural adjustment, implying new signs of growth. Against such a context, China’s economy may work out its downward room within a certain period to come, thus achieving a new normal of structural transformation and stable growth. Therefore, “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”), despite a continued drop in October, may have a limited downward room in the future.
At the macro level, the money expansion effect represented by reserve requirement ratio and interest rate cuts are increasingly emerging. Along with the market-based interest rate operation and the acceleration of RMB internationalization, companies will operate and real economy will raise funds at further lower costs. Meanwhile, the related measures of the fiscal policy aimed to stabilize growth are being steadily implemented, and especially the related major infrastructure investment projects are being gradually conducted under the promotion of the “Belt and Road” initiatives and relevant regional development strategies, altogether laying an important foundation for economic recovery.
However, the macro economy that gets stabilized gradually at the rock bottom cannot deal with the current weakness of the micro economy immediately. De-leveraging and investment transformation operate synchronously due to the stage characteristics of economic development; besides, the de-leveraging in traditional industries and the financing demand of emerging industries will also impose an unprecedented pressure on financial institutions. So whether a moderate and high investment growth rate in a period to come and a virtuously cyclic growth of economic structure at the same time can be realized remain a key link of macro-economic operation and policy studies in the next stage.
In October, the SMEOI reported 46.6, down 0.1 point slightly over last month, which is another fall of the general index since it remained unchanged for two months. But this time, the reduction is obviously less than the previous two rounds, and the bottom characteristics emerge again during the economic downturn.
Despite the downward trend in most of sub-indices, the market index and the confidence index both decreased by 0.2 point as well as the purchasing index, the expansion index and the cost index dropped by 0.1 point, indicating a narrowing decline; in addition, the performance index and the financing index increased by 0.1 point, and the risk index grew by 0.2 point. Two features are then seen from the above: first, most of small and micro-sized enterprises (SMEs) in the economy have no motivation for expansion, and hold mentalities of lacking confidence and reserving strength; second, SMEs have slightly improved their business performance and had an slightly easier access to financing, which is a particularly hard-won achievement in the economic downturn and at the year-end.
At the regional level, the general index of South Central China ranked the first place with the end of agricultural harvest season, slightly up by 0.1 point over last month; that of Northeast China and Southwest China remained unchanged; and among the three declining regions, Northwest China experienced a maximum fall of 1.7 points, which is not only closely related to the geographical and climatic environment of the region, but is even more related to the inter-regional conduction of economic operation. Perhaps we should expect the northwestern region where small and micro-sized economy is most fragile to stabilize, which may become one of the signs indicating the overall stabilization of small and micro-sized economy. However, its SMEOI in the month was only 44.6, still far away from the threshold separating contraction from expansion.
At the industrial level, small and micro-sized economy didn’t fluctuate much in October. As the year end is near, the account settling and delivery cycles of SMEs overlap, and thus the index in the wholesale and retail industry and the accommodation & catering industry rose to a small extent; the agricultural harvest season also kept the agriculture, forestry, animal husbandry and fishery index unchanged, with the service-industry index also unchanged; but SMEs in the manufacturing, construction and transportation industries suffered different declines in their operation, which is also an element to cause an alert for those three industries are closely connected with investment. The stabilization and even recovery of those industries are critical for the pickup of small and micro-sized economy.
Based on the above analysis, while the bottom characteristics of the macro economy operation are becoming obvious, the micro economy does encounters the operating difficulties and the slow conduction of policies. Therefore, on the one hand, investments in emerging industries must be followed up in time during de-leveraging in order to avoid the possibility of a deep decline; on the other hand, a sufficient transition policy should be matched during the transition from investment to consumption. As the cultivation of comparative consumption habits as well as consumption capacity needs a gradual and long-term process, we should look at the change in the logic of economic growth in a dialectical way. The Fifth Plenary Session of the 18th CPC Central Committee provides a key institutional support for economic transition and innovative development. Particularly, a variety of policies in terms of investment structure innovation and transition, consumption promotion, and improvement in people’s livelihood and environment will generate a substantial influence on SMEs’ bottoming and even recovery in the next stage .