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Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance
In August, various reform initiatives were introduced intensively, including a series of directional adjustment and control measures like continuously promoting structural reforms, reducing reserve requirement ratio & interest rates again, cutting taxes and fees and stabilizing market. Because the supporting policies take time to release effects, small and micro-sized economy still continued to decline. In August, “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”) hit a record low throughout the year. It indicated a notably downward trend with the manufacturing industry especially sluggish. Seen from the overall macroeconomic operation, the task of stabilizing growth now comes to a critical point, which almost determines the expectation for macro economy and especially small and micro-sized economy in the third quarter as well as the economic planning in the fourth quarter and even the beginning of next year.
Global commodity price continues to drop recently, resulting in the decline in factory price index. The continuously falling factory price index means that the year-on-year decline degree of PPI may be further expanded in the future and it is difficult for enterprises to raise profitability again. The decline in commodity price also causes enterprises to postpone raw material stock-up and even reduce production and management scale, so that the production cycle may be delayed. It can be seen that the manufacturing industry is still faced with a severe situation in the short term.
The macro economy was still slipping towards the rock bottom in August. On the good side, the power output grew, which means the industrial added value might rebound. In addition, the consumption and emerging industries had good performance in the first half year and became new highlights of economic growth. But other indices operated unsatisfactorily. Fixed assets investment continued on the decrease. The total profit gained by national industrial enterprises above designated size from January to July published by the National Bureau of Statistics went down by 1% on a year-on-year basis, which comprehensively reflected the economic operation status and indicated that the profit conditions of enterprises would continue declining within a short term. Various data revealed that the steady recovery of the Chinese recovery was still faced with pressure in the short term.
In August, the general index of SMEOI reported 46.7, 0.3 point down over last month. Among the various sub-indices, the cost index increased by 0.2 point, the purchasing index and performance index remained unchanged, and other five indexes presented a decline. Seen from cost index, although a rise was good, it, as a backward indicator, also reflected that the purchase of enterprises for the next step is less motivated and the upstream raw material industries operate sluggishly.
From a regional perspective, the regional indexes of Northeast China, East China, Southwest China and Northwest China remained in a declining state, and all regional indexes stayed below the threshold separating contraction from expansion, which revealed that the growth of SMEs in all regions was relatively weak. From the perspective of industry, except that the index in the accommodation & catering industry increased slightly in August, other seven industries all suffered different degrees of decline in the index. The construction industry in its peak season still failed to show obvious signs of recovery. All of these indicated that SMEs still operated under a certain downward pressure. The SMEOI of the transportation industry with a slight growth in last month sustained another decline in August. According to the data, the traffic volume of SMEs in the industry decreased by 2.5 points, the income from principal business dropped by 0.9 point, and the profit went down by 2.2 points, adding up to a worrisome condition. In August, the SMEOI in the manufacturing industry reported 45.2, down 0.3 point over last month. Among it, the order volume decreased by 0.8 point and the purchasing quantity of raw materials fell by 1.1 points. If the manufacturing industry cannot stop declining and pick up, small and micro-sized economy will continue to go under pressure and be hard to recover.
Seen from the index performance, the overall operations mall and micro-sized economy was not optimistic in August. However, based on two fundamental factors, the recovery of small and micro-sized economy is still worthy of expecting for a future period of time. First, the data of macro economy still move in a reasonable range. Second, various policies have been put in place. To ensure small and micro-sized economy can get stabilized and start picking up, the relevant authorities shall strictly implement the proactive fiscal policy and steady monetary policy at the macro level, continue to push through the reform of financial system, maintain the reasonably ample liquidity and enhance its capability in serving real economy on the one hand, and maintain the stable operation of financial market, strengthen and improve the risk management, and take preventing regional systematic risks as the bottom line on the other hand.
Policies on interest rate and exchange rate constitute two major aspects that are expected to have greatly potential effects on small and micro-sized economy in the short term.
In terms of interest rate, the policy still needs to be further eased and more directional support shall be given to small and micro-sized economy. At the previous stage, some discussions on inflation expectation were caused due to the rise in pork and green vegetable prices. However, seen from the still on-going expansion in the difference between the producer price index and the consumer price index, it is too early to discuss inflation. In terms of the exchange rate reform, the central parity rate of RMB to USD has been quickly adjusted since August 11, and the exchange rate of RMB has become stable at present. The stable exchange rate policy is beneficial to the steady and sound growth of imports & exports as well as relevant small and micro-sized economy in both upstream and downstream industries.