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The Manufacturing Industry Determines whether Small and Micro-sized Economy can Bottom out and Recover in Q2

Date: 2016-05-13

Researcher Li Quan at Research Institute for Fiscal Sciences, the Ministry of Finance

The “Economic Daily-PSBC Small and Micro-sized Enterprise Operating Index” (hereinafter referred to as “SMEOI”), as one of important barometers for the growth of small and micro-sized economy, offered us an account of how the economy operated in the second quarter of the year. Overall, the sluggish trend of small and micro-sized enterprises (SMEs) weakened slightly, but the manufacturing industry was still notably weaker than other industries. So the intermediate link plays a critical role in helping small and micro-sized economy bottom out and pick up at the current stage.

The growth of SMEs is closely related with the macroeconomic environment. Seen from the Chinese macroeconomic operating data in May, the overall economic situation is still not optimistic. The initial value of the HSBC manufacturing PMI reported 49.1%, still below the threshold separating contraction from expansion. The export data looked more worrisome. Under this background, policies aimed to stabilize growth have been released successively, among which those aimed to cut interest rates, adjust import and export duty rates, adjust pricing in the pharmaceutical market, swap oriented local government debts, and develop e-commerce in rural areas and overseas. have begun to have a positive influence on the Chinese economy. What most interests people are the policies about the manufacturing industry, such as “Made in China 2025”, “Guidance on Promoting Cooperation in International Production and Equipment Manufacturing”. The introduction of these policies will point out some direction for the long-term operation of the Chinese economy.

Based on the analysis of the SMEOI this month, the general index remained unchanged from last month but still below the threshold separating contraction from expansion, indicating that China’s SMEs operated weakly. Especially with the market index, purchasing index, performance index and expansion index of SMEs all below the threshold, SMEs delivered a not so good performance, as seen in the market downturn of SMEs in various types. What’s worse, it has affected the purchasing behavior and expansion tendency. Coupled with the external uncertainties, SMEs operated under greater pressure.

We will have a clearer understanding of the overall situation of small and micro-sized economy after conducting a modular analysis to the SMEOI in May.

From the operation trend of the general index, SMEs operated better than last month. The market index rose 0.3 points, the purchasing index grew 0.2 points, the performance index increased 0.5 points, the expansion index fell 0.3 points, the confidence index dropped 0.7 points, the financing index went up 0.2 points, the risk index declined 0.8 points, and the cost index dropped 0.4 points. It can be seen despite an overall sluggish operating trend, SMEs took on some signs of growth as a whole in May. The introduction of various macroeconomic policies may drive up the subsequent growth of small and micro-sized economy.

From the industry point of view, the manufacturing industry, the construction industry, the accommodation & catering industry, and the service industry all saw their SMEs operating better to some extent. Although the index of SMEs in the wholesale and retail remained unchanged from last month, its growth trend in the past five months of the year looked good, with the general operating index posting 49.2, unchanged from last month, the market index, the purchasing index and the performance index up by 0.1, 0.5 and 1.0 points respectively.

If the recovery of SMEs in the construction industry was related to the weather factor, the comprehensive recovery of the SMEOI in the accommodation & catering industry, the construction industry, the wholesale and retail industry and the rising index of SMEs in the service industry should be seen as a good omen. It should be said that the operation of SMEs in the second quarter of the year displays an improving trend.

The subsequent operation of SMEs still faces greater pressure. Despite an operating pickup, the expansion index and the confidence index of SMEs in May showed a downward trend. In addition, the data of SMEs in the agriculture, forestry, husbandry and fishery with relatively long operating cycle seemed not very good in May. Its expansion index dropped 2.2 points from previous month, new investment fell 1.4 points, labor demand went down 2.9 points. The data of SMEs in the transportation industry sensitive to operation conditions in May were not ideal, either. Its expansion index dropped 1.2 points over previous month, new fixed assets investment decreased by 1.9 points, and labor demand dropped by 1.0 points.

What’s more important is that the manufacturing industry index of SMEs still runs at a low level. Analysis found out that it’s related to the fact that the manufacturing industry in the small and micro-sized field had a poor access to financing in China. Different from SMEs in the accommodation and catering industry, the wholesale and retail industry and other industries, those in the manufacturing industry don’t have ample cash flow, thus dragging down the recovery.

Considering the connecting role it plays in the raw materials procurement, product sales, distribution, customer service and other fields of small and micro-sized economy, the manufacturing industry determines whether SMEs could pick up and small and micro-sized economy can recover in the second quarter of the year.

According to the latest survey findings, the order volume of SMEs in the manufacturing industry began to rise in May, and the decline of production slowed down as well. It’s particularly noteworthy that the profit of SMEs in the manufacturing industry rose by 1.3 points in the month, which is significant to the confidence recovery and the financing accessibility enhancement in the future.