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Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance
In the first half of 2015, the global economic economy failed to show clear signs of recovery, and Greece and other countries slipped into a debt crisisare frequent. It was in such context that the Chinese economy managed to slow down its downturn, with the signal of bottoming out and pickup in sight. Whether small and micro-sized economy that operates at the bottom area can lead the recovery attracts more attention particularly. In June 2015, the “Economic Daily-PSBC Small and Micro Enterprise Operating Index” (hereinafter referred to as “SMEOI”), as one of major barometers for the operation of small and micro-sized economy, offered us an account of how the economy operated in the last month of the first half of the year. Seen from the data in the first half of 2016, affected by many downward factors, the small and micro-sized economy tended to decline, but the downward trend has slowed down somewhat. In a sense, the full recovery of small micro-sized economy may still need time. However, if this trend can continue in the third quarter and even the fourth quarter, small the micro-sized economy will bottom out and recover as expected.
In the first half of 2015, the economies in Europe and other areas performed unsatisfactorily, which dragged down the global economy. Against the global economic downturn, the Chinese government rolled out an array of supporting policies like cutting cut interest rates and RRR and boosting Internet applications. Although the Chinese economy took on the signs of bottoming out, the comprehensive recovery of the macro economy still needs to follow the basic law of economic operation. According to the latest data, the final value of the Chinese HSBC Manufacturing PMI in June reported 49.4, lower than the initial value of 49.6 but higher than the final value of 49.2 in last month, which has showed a trend of recovery for two consecutive months. It should be said that a trend of economic recovery is gradually emerging, but the index is still below the threshold separating contraction from expansion, with the follow-up economic situation to be seen. One potential problem is that the downturn of the manufacturing industry may transfer to other industries. This is one important sign for a full recovery across all industries. At present, the manufacturing industry takes on a trend of getting stabilized, which lays an important foundation for the coming rebound.
So far, the price of industrial products has continued a declining trend that started four years ago. The absolute price level has been on the decrease, with not only general industrial raw materials, but agricultural products witnessing their price down. The price of pork failed to continue the stabilized and rising trend in the second quarter. The deflationary pressure still exists. At the same time, the market pressure appeared again, leading to the rebounded stock. It will be probable to increase pressure on the future de-stocking process whether from production only or production, supply and marketing combined. To address these issues, the Chinese government has issued such policies as cutting interest rate and RRR and decreasing power fees and these measures have been gradually taking effect as expected in economic operation. But in the economic transformation period, the stabilization of micro economy is often lagging behind the macro policy and trend. Now on the one hand, the pressure from phasing out overcapacity and de-leveraging is considerable; on the other hand, the emerging industries have not formed the scale of production and thus can’t replace the traditional industries in terms of contribution to economic growth. All of these will put the macroeconomic recovery under pressure in the short term. However, in the long term, the pains from adjusting economic structure will become impetuses to the stable development of macro economy.
Seen from the general index of SMEOI in the second quarter, the rapid decline at the beginning of the year has been replaced by a slow declining trend, which is a positive signal. In the second quarter, a connecting quarter, small and micro-sized economy not only summarized how it operated in the first half of the year, but also started its operation in the second half of the year.
Compared with the operating index in the first quarter, the SMEOI in the second quarter had a narrowed decline significantly. By the end of Q2, it even showed a sign of getting stabilizing and picking up. Among the sub indices, the finance index reported 51, up by 0.3 point and the cost index posted 61.5, up by 2.3 points notably. This shows that the financing environment of SMEs has improved in the support of national easing monetary policy and that the operation cost of SMEs becomes more reasonable in the process of overall economic structure adjustment and perfection. At the same time, the regional index also showed an improving trend compared with May. The operating index in Northeast China stood at 46.8, up by 0.2 point, that in South Central reported 48.4, up by 0.6 point, that in Southwest China posted 47.1, up 0.6 point. Seen from their sub-indices, the contributing factors of the increase in the three regions are derived from the market supply & demand recovery, enhancement in purchase intention and increase of financing intention. It can be seen that small and micro-sized economy has shown signs of stopping decline and getting stabilized in some regions and industries in the second quarter, different from the overall, rapid fall in the first quarter.
At present, the overall decline of small and micro-sized economy has relieved somewhat. Especially, the index in June further reflected the operating conditions of SMEs at the end of the second quarter. Small and micro-sized economy is expected to continue stabilizing and gradually realize industrial and regional recovery in the third quarter. Indeed, Q3 is particularly important for the operation of small and micro-sized economy, because it is a connecting quarter and more an important impetus in the second half of year. Considering the financing features of SMEs and their shorter production process compared with large and medium-sized enterprises, Q4 usually works as an important node for small and micro-sized businesses to collect receivables and plan production and operation for the next year. Except those in the accommodation & catering industry and the wholesale and retail industries, most SMEs often do not make substantial expansion in Q4. So the production and operation in Q3 tend to make a greater contribution to the operation results in the second half of a year.
Q3 has just begun. In June, the operating index of SMEs in Northeast China, South Central China, and Southwest China started to get stabilized and pick up. Differentiated operation could be seen among different industries. The SMEOI in the agriculture, forestry, husbandry and fishery and the construction industry also started to stabilize and rise. Although the rebound may be related to the periodic economic operation, small and micro-sized economy, as the tentacle of economic operation, is indeed showing some new vitality.
Small and micro-sized economy, as a part of macro economy, tends to be small in size yet flexible in operation. So it is expected to recover ahead of the macro economy. To do so, it needs adequate policy support. If the policies continue to take effect and the bottoming out and pick up can occur in the third quarter, small and micro-sized economy is likely to achieve a rapid and stable growth throughout the year.