Has the Chinese economy finally bottomed out and rebounded in June?
Is the Chinese economy bottoming out and warming up?
Today, the PMI data for June was announced. This index represents the operational development status of China's manufacturing industry. If analyzed carefully, it can provide a clearer understanding of the trajectory of China's economic development.
Today, we will delve into the PMI index to see how the Chinese economy has been performing in the past month and how it might evolve in the future. Writing is not easy, so welcome likes, shares, and bookmarks.
Has the PMI index bottomed out and rebounded, reversing the Chinese economy?
According to data from the National Bureau of Statistics today, the PMI index for June is 49%, a 0.2% increase from the previous month. From the data, the downward trend of the PMI in April and May has been stabilized, showing a slight rebound. The prosperity level of the manufacturing industry has improved, and the worst-case scenario we were concerned about, where the downward trend could not be stopped, can be said to no longer exist.
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The PMI index for June shows a warming trend!
However, there are some subtleties within the 49% prosperity index, which I will explain to you.
1. There is a difference between the manufacturing and service industry PMIs.
The prosperity level of the manufacturing industry is 49%. There is also a non-manufacturing PMI that judges the development of the service industry, which is currently at 53.2%, remaining in the expansion range. Therefore, overall, our economy is expanding, with the composite PMI at 52.3%. This is also why everyone is complaining about the economy, but the economy is still developing overall.2. There is a significant gap in the PMI of small and medium-sized enterprises (SMEs), and their development is not balanced.
When looking at the scale of businesses, we generally categorize all enterprises into three types: large, medium, and small.
Among them, the PMI of large enterprises is 50.3%, an increase of 0.3%. The PMI of medium-sized enterprises is 48.9%, with an increase of 1.3%. The PMI of small enterprises is 46.4%, which has actually decreased by 1.5% compared to the previous month.
June manufacturing PMI heat map, image from the internet. (Cool colors represent poor performance, while warm colors represent good performance)
What does this mean? Firstly, the larger the scale of the enterprise, the better the PMI performance. State-owned enterprises (SOEs) continue to see growth in profits and earnings.
Small enterprises perform the worst, not only having the lowest PMI but also showing no signs of bottoming out and rebounding, which requires our high vigilance.
From an overall perspective, small enterprises are the most numerous, providing the most job opportunities, and contributing the most to tax revenue. If SOEs represent the high-end image of Chinese enterprises and the pillar of the Chinese economy, then the PMI of small enterprises is one of the representative indices of the private economy, which more directly affects the employment, wage levels, and quality of life of the general public.
Therefore, the above data indicates that although the comprehensive performance of PMI in June has shown some signs of recovery, we cannot let our guard down, as the overall trend has not been completely reversed, especially the PMI of small enterprises, which is showing an increasing decline.3. Economic momentum is emerging, with production and demand indices showing a relative recovery.
Let me share some more good news: the sub-indices of PMI have shown a recovery, with the production index at 50.3%, the equipment manufacturing industry index at 51.9%, and the consumer goods order index at 51.4%, all still within the expansion range.
This means that in the most crucial areas of demand and production, we have actually stabilized the downward trend seen in April and May. The performance is relatively good.
How will the economy perform in the second half of the year?
Having said all that, can China's economy warm up this year? Recently, a Summer Davos Economic Forum was held in Tianjin, attended by domestic and international economic heavyweights who shared their views on this matter.
At the Tianjin Davos Forum, many bigwigs commented on China's economy.
Firstly, the Deputy Managing Director of the IMF stated that China's economy is currently warming up, with the second quarter expected to perform slightly better than the first quarter, and it can achieve a GDP growth target of 5%. This figure is actually an excellent report card, capable of outperforming almost all European and American countries.
In addition, the chairman of a US think tank spoke, stating that according to China's economic strength, an economic rebound is certain; and many global financial institutions have also begun to raise their forecasts for China's economic growth.
For example, the World Bank believes that China's GDP growth for this year will be 5.6%, exceeding our target growth rate of 5%. The United Nations also believes that China's GDP growth can reach 5.3%.
The World Bank estimates that China's economic growth rate will be 5.6%, while the United States will only have 1.1%.As these economic organizations, they are actually pleased to see the Chinese economy rebound, because as the locomotive of global economic development, when the Chinese economy warms up and develops well, it means that other economies will also benefit. Especially those economies that are closely linked with China's economy.
Of course, these bigwigs attending the conference are not just there to flatter; they also express their concerns: for example, the Chinese economy is quite dependent on foreign trade exports, and recently, the relationship between China and the United States has been tense, with a certain degree of "anti-globalization" in global trade and economy. This will affect China's foreign trade, thereby constraining the economic rebound.
China's foreign trade is influenced by the relationship with the United States.
Furthermore, although the Chinese economy and consumption have rebounded, to be honest, they have not met expectations. Moreover, the supply and demand in the real estate market are not balanced, indicating that we need to increase our efforts to ensure that the real estate market does not experience systemic risks; otherwise, it might lead to a situation similar to Japan's "Lost 20 Years."
So, even though the Chinese economy has shown signs of mutual warmth in the short term, and the future is bright, we cannot be complacent or relax. We must introduce more favorable and stimulating policies to ensure the stable operation of the economy, especially to ensure that the broad masses of people can have a better life in the current economic cycle.
Favorable news abounds, and dual stimulus policies help the economy recover!
Facing dangers and opportunities, there have been many recent policy moves, with the higher-ups introducing numerous favorable policies. I have summarized them as mainly expansionary but restrained monetary policy and continuously increasing fiscal policy stimulation.
First, let's look at monetary policy. To boost market confidence, the central bank chose to lower interest rates and release liquidity in June. This approach is beneficial for reducing the financing costs of the real economy, reducing the burden on enterprises, and at the same time, by lowering the LPR rate, it is also advantageous for the real estate sector.
The central bank chose to continue lowering interest rates to stimulate the economy.
However, we need to understand that China's interest rate cuts have been ongoing for many years, and while lowering interest rates is good, due to the Federal Reserve's continuous interest rate hikes since last year, global capital interest rates have been rising.Against the backdrop of the United States raising interest rates and China lowering them, the widening interest rate gap between China and the U.S. implies a risk of capital outflow, making it more difficult for China to continue lowering interest rates. However, not lowering them is also not an option. Thus, I would say this is an expansionary monetary policy with restraint.
In terms of fiscal policy, we have always used expansionary fiscal measures to stimulate the economy, but the previous efforts were not very strong, which is also one of our aces in stimulating the economy.
We can increase investment in education and healthcare, and provide more subsidies to directly reduce the living expenses of ordinary people and low-income individuals, thereby improving the quality of life for these groups.
Moreover, intensified tax cuts and fee reductions can also benefit taxpayers through tax refunds, which are akin to an annual "year-end bonus" returned to the working class, thereby promoting domestic demand and consumption, and aiding in economic recovery.
From the perspective of foreign trade and the market, China's advantageous industries on the international stage have also begun to bring us a steady stream of trade surpluses, and are helping the Chinese economy to transform and upgrade.
For example, China's new energy vehicles have begun to be sold to countries around the world, which was previously inconceivable, as China has always been importing fuel vehicles from Europe and America, especially luxury cars like BMW and Mercedes-Benz, which have been making a fortune in the Chinese market.
Take China's photovoltaic products as another example; they have always been in high demand in the EU and the U.S., to the extent that the completion of the U.S. photovoltaic and carbon neutrality industries depends on how much photovoltaic products China sells to them.
The U.S. photovoltaic industry largely relies on imports from China.
The Chinese economy, facing challenges! Seizing opportunities!
Overall, with the release of the PMI data for June, we see both crisis and hope: the crisis lies in the poor performance of the PMI index for small businesses, which is still in a downward trend, indicating that the private economy still requires greater assistance and support.The opportunity lies in the fact that China's economic fundamentals are stable, with the large and medium-sized PMI index bottoming out and rebounding, and the comprehensive PMI index also performing well. We have essentially stabilized the downturn that occurred in April and May. Moreover, the expectations for China's economy from various bigwigs and economic organizations are also very high. Most of the forecasts are higher than China's own growth expectation of 5%, which is truly commendable.
I hope that China's economy can receive more favorable stimuli!
In conclusion, I hope that economic stimulus policies can continue to be adjusted and intensified to get through the Federal Reserve's interest rate hike cycle! I also believe that we will seize this opportunity to adjust China's industrial structure, enabling China's economy to achieve better and faster development! Go, China's economy!