Looking forward to China’s economic performance in 2017 from the “U-shaped” price recovery

1. Prices completed a “U-shaped” recovery at the beginning of 2017

First of all, from the perspective of the consumer sector, CPI shows an obvious “U-shaped” rebound, and it is a trend change driven by economic fundamentals. In January 2017, China’s Consumer Price Index (CPI) rose by 2.5% year-on-year, continuing to increase by 0.5 percentage points compared with the full-year increase in 2016. The previous year-on-year CPI It rose by 2.0%, which was 0.6 percentage points higher than the increase in 2015. From a longer perspective, from January 2014 to January 2017, CPI at all levels showed an obvious “U-shaped” trend. Further analysis found that the strong rebound in CPI in January can basically rule out the possibility of the Spring Festival holiday being dominant, but is a trend change driven by economic fundamentals. In January, food CPI rose only 2.7% year-on-year, CPI excluding food rose 2.5% year-on-year, and core CPI excluding food and energy rose 2.2% year-on-year. That is, CPI at all levels has increased significantly compared with 2016. At the same time, the date of the Spring Festival in 2017 and the base effect in the previous two years are highly similar to those in 2014. Comparatively, it can be seen that the CPI increase in 2014 was also 2.5%, but the food CPI increased by 3.7% year-on-year. The CPI excluding food only increased by 1.9% year-on-year. Core CPI excluding food and energy rose only 2.0% year-on-year. In addition, during the Spring Festival (February) of 2016, the food CPI reached 7.3%, while the overall CPI was only 2.3%. These comparisons fully demonstrate that compared with previous years, the CPI increase in January 2017 was less affected by the Spring Festival factors, and the possibility of being dominated by the Spring Festival factors can basically be ruled out. It can be seen that the sharp rebound in CPI in January is a trend change driven by economic fundamentals and is less affected by the Spring Festival factors. On the contrary, since the Spring Festival in 2016 falls in February, the food CPI has a strong base effect, which will lead to a significant fall in the food CPI in February 2017. However, this is a temporary fluctuation and should not be over-interpreted. The CPI will It picked up again in subsequent months.

Secondly,fromtheperspectiveofproduction,PPIhascompleteda”U-shaped”recoverytrendthatismoreobvious.InJanuary2017,China’sindustrialproducerpriceindex(PPI)roseby6.9%year-on-year,asharpincreaseof8.3percentagepointscomparedwiththe1.4%declinein2016.Amongthem,thePPIofproductionmaterialsincreasedevenmore,reaching9.1%.Infact,sinceSeptember2016,PPIhasturnedfromnegativetopositiveyear-on-year,andtheannualdeclinein2016was3.8percentagepointsnarrowerthanthatin2015.Fromalonger-termperspective,fromJanuary2011toJanuary2017,boththeyear-on-yearPPIindicatorandtheabsolutelevelofPPIshowedaveryobvious”U-shaped”trend.ThecurrentabsolutelevelofPPIhasreturnedtomid-2012,whenPPIbegantodecline.Thisshowsthatfromtheperspectiveofpricelevels,China’seconomyisquicklygettingridofdeflationarypressure.

Again,fromtheperspectiveofimportandexporttrade,theimportandexportpriceindexalsoshowsa”U-shaped”trend.Sincethesecondhalfof2016,China’sexportpriceindexandimportpriceindexhavebeguntostabilizeandpickup,reflectingtherecoveryofthetradesituation,especiallytheimportpriceindex,whichhasseenaclearrecovery.Fromalonger-termperspective,similartothetrendofCPIandPPI,theimportpriceindexalsoshowsatypical”U-shaped”trend.

Finally,onthewhole,theGDPdeflatorshowsastrong”U-shaped”recoverytrend.Inthefourthquarterof2016,theGDPdeflatorreached2.9%.NotonlydiditturnfromnegativetopositiveandachieveaU-shapedrebound,butthegrowthrateexceededthatofthefourthquarterof2013.AccordingtotheCPIandPPItrendsinJanuary2017,theGDPdeflatorinthefirstquarterof2017islikelytoreachthelevelofearly2012,whichmeansthatthisroundoflong-termadjustmentoftheChineseeconomywillenteranewstage.

Insummary,itcanbeseenthatwhetheritisCPI,PPI,importprices,orcomprehensiveGDPdeflator,theyallshowaperfect”U-shaped”trend.So,whatexactlydoesthecurrentpricetrendmeanfortheChineseeconomy?Orwhatisreflectedbehindit?OnlybyaccuratelyjudgingthisissuecanwemakeabetteroutlookforChina’seconomicsituationin2017.

2.Thecurrent“U-shaped”pricerecoveryreflectsimportantchangesineconomicfundamentals

(1)China’seconomycontinuestoheatupatthebeginningof2017

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ThecurrentpricerecoveryfirstreflectstherecoveryofChina’seconomy,includingthestabilizationandrecoveryofthemanufacturingindustry.January2017Positivechangesinindicators.ThisshowsthatpeoplefromallwalksoflifehavebeguntohavehighhopesforthebottomingoutoftheChineseeconomyanditsgrowthprospects,bothattherealeconomiclevelandatthefinanciallevel.

Seventh,supply-sidestructuralreformhasmadesubstantialprogress.In2016,the“threereductions,onereductionandonesupplementation”policywassubstantiallyadvancedandachievedinitialresults.Intermsofovercapacityreduction,the2016steelovercapacityreductiontargetwas45milliontonsandthecoalovercapacityreductiontargetwas250milliontons,bothofwhichexceededthetargetaheadofschedule;forthesteelindustry180,000employees,620,000employeesinthecoalindustry,andnearly700,000havebeenrelocated;corporateefficiencyhasimprovedsignificantly,andthetotalprofitofthesteelindustryturnedaprofitin2016,andtheferrousmetalsmeltingandrollingprocessingindustryThetotalprofitincreasedby2.3times,andthetotalprofitofthecoalminingandwashingindustryincreasedby2.2times.Intermsofdestocking,theareaof​​commercialhousingforsalein2016droppedby3.2%comparedwith2015.Inparticular,theareaof​​residentialhousingforsaledroppedby11%comparedwith2015.Inventorylevelsarealreadylowerthanin2014.Intermsofdeleveraging,market-orienteddebt-for-equityswapsandcorporatemergersandreorganizationsareprogressinginanorderlymanner.In2016,thecorporateasset-liabilityratiowas55.8%,down0.4percentagepointsfrom2015.Intermsofcostreduction,thecostsoftherealeconomycontinuetodecline.In2016,thecostper100yuanofmainbusinessincomeofindustrialenterpriseswas85.52yuan,adecreaseof0.16yuanfrom2015.Intermsofmakingupforshortcomings,positiveresultshavealsobeenachievedinkeyareassuchastargetedpovertyalleviationandindependentinnovation.

Thetrendgivesusmoreexpectationsfortheeconomicsituationin2017.Atthesametime,2017isalsoanimportantyearfortheimplementationofthedetailedrulesofChina’s”13thFive-YearPlan” and the year for the comprehensive deepening of supply-side structural reform. With the implementation of proactive fiscal policies, intensified reform efforts, and the continuous release of new institutional dividends, China’s economic growth situation will continue to improve. It is expected that in 2017, the overall pattern of China’s economy will be stable while making progress, and the economic situation will be stable and improving. The GDP growth rate for the whole year is expected to be 6.5%-7%, and the CPI growth rate is 2.5%-3%.

First, after steady growth in 2016, China’s economy will have a stable foundation in 2017. At the macro level, economic growth leads the world; at the micro level, corporate performance has improved significantly, especially the total profits of manufacturing companies increased by 12.3%. At present, the relationship between supply and demand is improving, and leading parameters have rebounded strongly. In January, the manufacturing purchasing managers’ index (51.3%) and the non-manufacturing business activity index (54.6%) were both in the expansion range, and some new momentum and new business formats performed better than expected.

Second, the resilience of China’s economy has greatly increased the confidence of domestic and foreign investors. According to the latest “World Economic Outlook” report released by the International Monetary Fund in January, China’s economic growth rate returned to the first in the world in 2016, contributing to global growth. Reaching 30%, exceeding the sum of developed countries, allowing global investors to see the resilience of the Chinese economy. At the same time, the IMF also significantly raised China’s economic growth forecast for 2017 by 0.3 percentage points to 6.5%, saying that China is the main driving force for world economic development.

Third, structural transformation has achieved remarkable results and resilience has been further enhanced. In 2016, China’s economic growth became less dependent on investment and external demand. In particular, the current account surplus accounted for less than 2% of GDP. In the face of external uncertainty in 2017, China’s economic growth became less vulnerable and more resilient. . And judging from the start of 2017, compared with the continuous shrinkage trend of trade in the past two years, the import and export situation in January 2017 has improved significantly.

Fourth, the introduction of a series of medium- and long-term plans will help stabilize investors’ expectations and confidence. The State Council recently issued the “National Population Development Plan (2016-2030)” and the “National Land Planning Outline (2016-2030)”, which clarified the direction of China’s population development and land resource development and utilization for a long period of time in the future. , overall overall planning and deployment. The introduction of these medium- and long-term development plans not only plays a fundamental guiding role in future economic construction, but is also conducive to stabilizing investor expectations and investment confidence, breaking the continued decline in private investment growth since the beginning of last year.

Fifth, China’s CPI inflation picked up moderately in 2017, and the “debt-deflation” pressure eased. Due to the base effect, CPI and PPI will not fall significantly in 2017. The degree of increase in PPI depends on the progress of destocking and overcapacity, as well as international commodity prices, which are expected to show “previous highs” Slow down later” situation. CPI will also increase, but it will not be too high, roughly around 3%. Overall, the “debt-deflation” pressure that has plagued China’s economy in the past few years will be alleviated, and inflationary pressure has not yet formed, thus creating valuable policy space for China’s economic operation in 2017.

Sixth, in 2017 economic work will make progress while maintaining stability a methodology, and some important reforms will achieve breakthroughs. In 2017, China’s economy has clearly bottomed out and stabilized, and the task of “stabilization” has been somewhat less stressful than in previous years; the scope, depth, and tools of “advancement” in 2017 will be upgraded and adjusted, especially the supply-side structural reform. “Three cuts, one reduction and one supplement” were expanded to four aspects. It can be expected that some important fundamental reforms will achieve breakthroughs in 2017. First, the supply-side structural reform will achieve obvious results and “qualitative” changes in 2017. At the same time, some basic reforms will also be broken, including state-owned enterprise reform, financial reform, fiscal and taxation system reform, and reform in the fields of social security and income distribution systems. As long as we persist in deepening reforms, China’s economy will enter a new stage and eventually achieve full take-off.

(Original title: Looking ahead to China’s economic performance in 2017 from the “U-shaped” price recovery)

(Editor in charge: DF319)