Weak downstream demand in manufacturing, non-manufacturing rebounded for 3 consecutive months

The short-term inventory cycle recovery of the current real economy, especially the manufacturing industry, is not yet stable. On the whole, non-manufacturing industries still have relatively abundant vitality in the process of economic structural transformation.

After a continuous sharp rebound in March and April, the Minsheng New Supply SME manufacturing index fell back in May, down 1.1 percentage points from the previous month to 45.8%; the non-manufacturing business activity index rebounded for three consecutive months. The May non-manufacturing business activity index was 44.4%, a slight increase of 0.2 percentage point from the previous month.

Recently, China Minsheng Bank and China Academy of New Supply Economics jointly issued the “May 2016 People’s Livelihood New Supply SME Index (Manufacturing)” and “May 2016 People’s Livelihood New Supply SME Index (non-manufacturing)”. The index and its sub-indices show the micro-level production and operation of enterprises, and are connected with the macro-environment.

A research team led by Huang Jianhui, Dean of China Minsheng Bank Research Institute, wrote an in-depth interpretation report on the Minsheng Index.

According to the report, although the foundation for economic recovery is not yet solid, the Minxin Index has improved significantly from the level in January and February this year, reflecting that the economy has maintained steady growth in the second quarter.

Although the manufacturing index has fallen, there are many bright spots in the sub-indices. From the perspective of manufacturing sub-indices, downstream demand is weak, and corporate production activities have been reduced; material and finished product inventories have fallen and rise; price index and supplier delivery time index have rebounded; overall financing situation has improved, and financing cost index has fallen; The capital turnover rate continues to accelerate, and the operating cash flow situation continues to improve; the profit index continues to rise, and investment expands steadily, which is expected to fall.

From the perspective of non-manufacturing sub-indices, the business activities of non-manufacturing enterprises continued to improve; downstream demand fell slightly, and corporate inventories declined; the employee index and front-line employee working hours index fell slightly; the sales price index declined slightly, suppliers Delivery time continues to accelerate; financing difficulties continue to ease, but financing costs have increased; capital turnover has tightened slightly, operating cash flow has once again fallen below the line of prosperity and decline; profitability index has increased slightly, and production and investment expectations have declined .

In response to the analysis of these indexes, the report gives several policy recommendations.

  • First, the exogenous growth driven by short-term demand is unsustainable and is accompanied by side effects such as “increasing leverage.” At present, the role of supply-side structural reform should still be brought into play, and demand expansion can only be moderate;
  • Second, as with the demand policy, supply-side structural reforms must also be guided by expectations. It is necessary to prevent the blind expansion of real enterprises, and to prevent enterprises from adopting wait-and-see and passive waiting due to insufficient understanding of the reform;
    Third, while the monetary policy emphasizes “soundness”, it should also avoid “sudden braking” and “overcorrection”. Given the small room for total growth, it is necessary to speed up financial reforms, unblock the policy transmission mechanism, and guide capital to enter the real economy, so as to effectively reduce the financing costs of manufacturing and non-manufacturing.

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