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Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance
The economic operation in the first three quarters of 2015 steps in the bottom area. Thanks to the constantly increasing policy support, one general expectation has taken shape, that is, economic downturn has slowed down and the bottom area of structural optimization starts to appear. Meanwhile, the expected reform directions become more obvious, namely the state-owned enterprise reform and the financial reform. As a series of decisions on deepening the reform of state-owned enterprises have been released, speeding up the reform has become one of the major tasks for economic operation in the next stage; another stronghold is the financial market reform, which is the only way towards the market-based operation of interest rates and RMB internationalization. Dominated by these two reform directions, the overall improvement of economic structure is quietly taking place. In this big context, we expect that small and micro-sized economy may also step into the bottom area along with the macro economy. In September, “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”) remained unchanged from last month, which is really not easy.
At the macro level, the economic operation has stepped into the bottom area in September and still shown a rocky state, which not only remains consistent with the economic operation trend from the beginning of the year till now, but also reflects the time-consuming and complex features of economic structural adjustment. The fixed assets investment in the first eight months across the country published earlier amounted to RMB 33.9 trillion, with an annualized year-on-year growth rate of 10.9%, which is lower than the expected 11.1%, hitting a record low in 15 years. However, it is unnecessary to be overly pessimistic. The decline in investment growth rate is caused by many factors. Rather than a pure market behavior, it is also caused by structural adjustment policies.
First of all, the overall international economy still stays in a post-financial crisis era. Although the United States has taken the lead in stabilization and recovery, starting from the manufacturing industry, the pickup in all other industries are differentiated. So it cannot be concluded that the country has stepped onto the comprehensive recovery path from now on. Europe is still in the downward period. Under the pressure of debt burden, it is also faced with the risk of continuous currency devaluation. Sweden has started to execute negative interest rates, and its central bank has declared to adopt the quantitative easing monetary policy and not to raise interest rate until the second half year of 2016. However, it remains to be seen whether the ultralow interest rate in Europe can be maintained and whether the Swedish action might cause other countries to follow.
Secondly, the investment growth rate in the Chinese real estate enterprises still declines due to land market downturn, pressure from de-stocking commercial residential buildings, and other factors. However, there is a good signal that the total land bought by top 20 real estate films including Vanke, Wanda, China Overseas Property, Poly, Hengda and Country Garden since September totaled RMB32.824 billion, reaching the peak in near eight months and only lower than RMB56.797 billion in January of the year. This reflects the possibility that the real estate may tend to recover from one side.
Finally, under the background of economic structural adjustment and due to the still prominent over-capacity, the overall investment in the manufacturing industry remains sluggish, causing weak growth in all trades of the industry. The continuously low factory price index of industrial products also clearly reveals the industrial trend. However, on the good side, some core investments in equipment manufacturing industry, service industry related to people’s livelihood, consumer goods manufacturing industry and high & new technology industry have grown fast due to the improvement in investment structure and capital structure. As the relevant policies continue to be put into practice, changes are quietly taking place in industry structure while the energy-intensive manufacturing industries speed down.
From the general index, the SMEOI reported 46.7 in September, remaining unchanged from last month. This condition successively appeared in May and June, but a declined index showed in July and August, indicating the overall operation of small and micro-sized economy was hitting the rock bottom. In addition, in the sub-indices of September, both the confidence index and the risk index got better, which reflected that small and micro-sized enterprises (SMEs) took on a sign of recovery after a continuous decline. However, it remains to be seen whether the entire small and micro-sized economy can be finally stabilized.
Seen from the industry index, it is optimistic that the manufacturing industry index, the construction industry index and the wholesale and retail industry index rose by 0.1 point. To be specific, among the manufacturing industry index, the production increased by 0.2 point, the product inventory by 0.4 point, and the profit by 0.4 point. Among the construction industry index, the value of new engineering contracts grew by 0.5 point, the income from engineering settlement by 0.5 point, the raw material inventory by 0.5 point, and the gross profit ratio by 0.6 point. Among the wholesale and retail industry index, the sales order volume increased by 1.1 points, the backlog orders by 0.6 point, the wholesale and retail price by 0.6 point, and the gross profit ratio by 0.4 point. Although the growth of these three indexes are not great, the production and operation conditions of the industries go towards a recovery. If this state can continue, it will do much good to the overall pickup of small and micro-sized economy. But at the same time, the agriculture, forestry, animal husbandry and fishery index decreased by 0.3 point with the gross profit rate down by 0.5 point; the transportation industry index fell by 0.1 point with the gross profit rate down by 0.2 point; the accommodation & catering industry index dropped by 0.4 point with the gross profit rate down by 1.2 points; and the service industry index declined by 0.3 point with the gross profit rate down by 2.7 points. Obviously, it remains to be seen whether SMEs can smoothly survive the conventional financing difficulty in the fourth quarter of the year.
As for the regional development, small and micro-sized economy in some regions improved to some extent in September. The SMEOI in North China went up by 0.4 point, that in Northeast China up by 0.1 point, that in South Central China up by 0.4 point, and that in Northwest China up by 0.3 point. However, the index in East China decreased by 0.9 point and that in Southwest China fell by 0.7 point, which also reflects that small and micro-sized economy hasn’t improved overall and it is expected that Northeast China and Northwest China can stop declining and start rebounding.
Based on the above analysis on the SMEOI and its various sub-indices, the debt chain tension caused by bank collection needs to be noticed during the operation of small and micro-sized economy in the fourth quarter of the year. The monetary policy in the quarter is still critical. The flexibly robust monetary policy shall be continued, and more policy support may be given at important intervals. Meanwhile, whether the fourth quarter can remain smooth depends on the accurate placement of financial funds. Adjusting economic structure and improving financing structure of small and micro-sized economy with intensified efforts constitute two measures combined in the macroeconomic regulation and control.