Economic downturn

China’s official PMI (Manufacturing Purchasing Managers’ Index) for August recorded 49.5, with a forecast of 49.7 and a previous value of 49.7

For the future economic policy, the author suggests to strengthen the counter-cyclical adjustment. On the one hand, it is necessary to prevent the money from releasing water to stimulate the real estate bubble. On the other hand, it is necessary to prevent the over-tightening of real estate financing and take the initiative to pierce the trigger of major financial risks, use time to change space and find new ones. Economic growth points, expansion of reform and opening up, mobilization of local government and entrepreneurial enthusiasm.

PMI fell back, for four consecutive months below the line of glory, supply and demand contracted, and new orders fell. The decline in PMI was mainly due to the decline in production, new orders and price indices. The decline in production was still in the expansion range, slightly stronger than demand, which was due to production restrictions before the National Day. The decline in the raw material inventory index and the rise in the finished goods inventory index reflect weak demand and a passive backlog.

New export orders rebounded, and trade friction upgraded enterprises to “grab the export”.

In August, new export orders rose slightly, but still below the line of glory. The main reason was the devaluation of the renminbi and the expectation of a new round of US tariff increases on September 1. Subsequent to the slowdown in global economic growth, the escalation of trade frictions and the accelerated transfer of the industrial chain, new export orders will fall.

The price index fell, and the risk of industrial deflation increased. In August, the international oil price fell. The National Development and Reform Commission lowered domestic oil prices twice on August 6 and 24; the South China Industrial Product Price Index fell, and the ex-factory price index fell. The probability of PPI continued to fall in August, and corporate profits fell.

The escalation of Sino-US trade frictions has hit business expectations, and the volume of purchases and raw materials stocks have fallen. On August 23, the US announced that it would raise the tax rate of US$250 billion from the original tariff increase to 30% from China’s imports, and impose a 15% tariff on the additional US$300 million. The escalation of trade friction has impacted corporate confidence. In August, business expectations and purchases fell by 0.3 and 1.1 percentage points respectively.

The national employment situation is grim

The PMI of large companies has declined but is still above the line of glory. The business climate of small businesses has rebounded but remains sluggish. In August, the output of large enterprises, new orders and new export orders fell compared with the previous month, but still higher than the line of glory. The rebound in the business climate of small businesses is mainly driven by new export orders. Private and export-oriented SMEs are rushing to export, but it is difficult to sustain.

At the same time, the business expectation index of small businesses

A rise of 1.6 percentage points reflects the policy’s efforts to achieve some results, but the pressure on demand and profitability has not fundamentally improved. On July 30, the Politburo meeting emphasized “effectively responding to economic and trade frictions and comprehensively doing the “six stables" work" and “guiding financial institutions to increase medium and long-term financing for manufacturing and private enterprises." On August 20, the People’s Bank of China issued a new LPR (Loan Market Quote Rate) formation mechanism to promote the reduction of the financing costs of the real economy. On August 27th, the State Council issued “20 Promotions for Consumption".

The manufacturing industry’s employee index fell again. In August, the manufacturing industry employee index was 46.9%, down 0.2 percentage points from the previous month; the non-manufacturing employee index was 48.9%, up 0.2 percentage points from the previous month, but still at a low level in a decade. The unemployment rate in the national urban survey in July was 5.3%, which was 0.2 percentage points higher than that in June, reflecting the severe employment situation of college graduates and migrant workers.

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