China's economy is gradually moving towards a slower growth lane

During the Spring Festival holiday, the first transcript of the Chinese economy in 2014 was first announced. In January 2014, both the official and private PMI indices showed a downward trend, indicating that the tightening of credit has led the Chinese economy to gradually move towards the slow lane. Although the two major PMI data are falling, the differences are obvious. Among them, the official PMI data based on large enterprises is still more than 50%, while the private HSBC PMI data mainly for small and medium-sized enterprises has slipped below the 50% boundary, indicating that the operation of small and medium-sized enterprises appears when the economy is lower. It is even more difficult, especially since the second half of last year, the price of funds has risen, the real economy has been affected more, and SMEs have been struggling.

Based on this observation, the Chinese economy will still be a year full of uncertainty this year. Although consumer demand is still expected to maintain a steady growth trend, overseas economic recovery will lead to a rebound in export growth, but investment growth will likely continue to decline due to changes in government assessment methods and rising capital pressure. In addition, financial risks under high leverage also need to be vigilant. In terms of policy, in order to reduce leverage, it is expected that monetary policy will not be relaxed in the short term. In addition, fiscal policy alone may release more room for policy operations when the Chinese economy is at risk of stalling.

Specifically, the official PMI data for January was 50.5%, down 0.5 percentage points from the previous month. Among them, different types of enterprises are still seriously divided. The PMI index of large enterprises is 51.4%, which is above the 50% boundary; the PMI index of small and medium-sized enterprises is 49.5% and 47.1%, respectively, both below 50%. This shows that since last year, the pattern of liquidity has continued. Compared with small and medium-sized enterprises, large state-owned enterprises still have natural financing advantages, and their financing channels are wide, and they can withstand higher interest rates. This conclusion can also be verified from the changes in the HSBC PMI index for SMEs in the same period. The final value of HSBC PMI in January was 49.5%, lower than 50%, and the lowest in 6 months.

According to the 12 sub-indices, except for the raw materials inventory, finished goods inventory, backlog orders and the expected index of production and operation activities rebounded, the other eight indexes have all fallen. Among them, the decline in the new order index was more obvious, falling to 50.9%, down 1.1 percentage points from the previous month, the lowest level since August last year, indicating that demand has slowed down. In terms of production, affected by “de-capacity” and weak demand, the production index in January was 53%, down 0.9 percentage points from the previous month. In addition, the purchase volume index was 51%, down 1.7 percentage points from the previous month.

From the import and export related indicators, the import index was 48.2%, down 0.8 percentage points from the previous month. Among them, new export orders fell for two consecutive months, has dropped to 49.3%, down 0.5 percentage points from last month, has shown the negative impact of factors such as the appreciation of the renminbi, rising domestic labor costs and increased international trade friction on export growth. However, in view of the January domestic and international shipping index, it seems to be better. Because China's export container freight index rose 5.9% in January, including 2.3% for the US, 13% for the European route, 2.27% for the Japanese route, and 4% for Hong Kong. In January, the index rebounded from the previous month or the same period last year. However, subject to the impact of the high base at the beginning of last year, the author expects that the export growth rate in January may be slightly over 5%.

As for inflation, the January purchase price index was 49.2%, down 3.4 percentage points from the previous month. It is the largest index among all the sub-items, and it also proves that the current economic fundamentals are relatively weak. This can be fulfilled from the downward trend of upstream product prices and the trend of high-frequency industrial products in the month. According to the price index of the Ministry of Commerce's production materials, the prices of energy, minerals, ferrous metals and non-ferrous metals fell by 1.2%, 1.6%, 0.1% and 0.5% respectively in January. In addition, domestic and international oil prices have also tended to weaken. Based on the above analysis, I expect the PPI to fall to -1.7% in January.

In addition, from the analysis of the price changes of the end consumer goods, from the trend of food prices announced by the Ministry of Commerce, due to the cold weather and the Spring Festival and other factors, the prices of vegetables, fruits and foods increased significantly in January. However, the price of pork before the holiday unexpectedly fell, making the seasonal increase in food prices during the Spring Festival this year weaker than in the same period of the previous year. Looking ahead, it is expected that CPI will increase by 0.7% in January and fall to 2.2% year-on-year. At the same time, inflation is expected to be moderate overall in 2014, but the risk of deflation should not be underestimated.

If we combine the January PMI and other economic indicators, the author believes that with the weakening of the previous "stable growth" policy, the strengthening of fiscal constraints and the tightening of monetary policy, the current Chinese economy has gradually entered a slow growth lane. Of course, due to the influence of the Spring Festival, etc., what is the economic downturn? The specific judgment still needs to wait until the data merger in the first two months of this year is announced.

Looking ahead to the economic trend of China in 2014, it is expected that GDP growth will “stable and decline”. Specifically, due to the impact of rising capital prices, investment growth will fall back, but consumption and net export growth will be expected to rebound, and the promotion of urbanization supporting reform will help release the consumption of migrant workers, and the second-child policy will be liberalized. It will also help stimulate the consumption of baby products. Of course, the economic recovery in Europe and the United States in 2014 may be expected to drive domestic export demand to pick up.

From a policy perspective, due to the rapid development of shadow banks and the rise of financial risks, the space for loosening leverage has been limited for some time in the future. Of course, reforms will inevitably have pains. With the change of the assessment mechanism of leading cadres and the continuous funding tension brought about by “lower leverage”, it is expected that investment growth will be affected this year. The author is concerned that once the risk of shadow banking is exposed, it will cause financial turmoil, excessive investment decline and economic escape. Therefore, it is recommended that the “de-leveraging” steps of Yinzi Bank should be gradual and should not be one-size-fits-all or too fast. In addition, once China's economic growth rate declines too fast, it is necessary to launch a truly proactive fiscal policy to shoulder the heavy responsibility of China's stable economic growth and escort the reform.