Text丨 Wen Bin, Wang Jingwen
1. Service industry: weaker than seasonal
The business activity index of the service industry in April was 50.3%, down 2.1 percentage points from the previous month, and the average month-on-month decrease of 0.4% in the same period before the epidemic. The services sector was weaker than seasonal in April.
In terms of sub-indexes, the new orders index for the service sector fell 0.7 percentage points from the previous month to 46.5%, falling to the lowest level this year, and the business activity expectation index fell 0.8 percentage points from the previous month to 57.4%, falling to the lowest level since January 2023. However, the employment index rebounded by 0.6 percentage points to 47.4%, rising to its highest level since June last year.
From the perspective of industries, 15 of the 21 industries surveyed had a business activity index higher than the critical point, an increase of 3 from the previous month, and the prosperity of the service industry expanded. Among them, the business activity index of railway transportation, road transportation, postal services, telecommunications, radio and television, and satellite transmission services is in the relatively prosperous range of more than 55.0%, and the total business volume has grown rapidly. At the same time, the business activity index of capital market services, real estate and other industries is running at a low level, and the prosperity level is weak.
From the perspective of supporting indicators, the number of domestic tourism trips during the 3-day Qingming holiday increased by 11.5% compared with the same period in 2019, and the travel expenditure increased by 12.7% compared with the same period in 2019, reaching the highest level since the epidemic, and the recovery rate of customer unit value reached 101.1%. However, after the holiday period, the consumption recovery rate has fallen. For example, in April, the scale of subway passenger traffic in the four major first-tier cities fell slightly compared with the previous month, and the domestic flight execution rate and box office scale also declined month-on-month, and were weaker than the same period in previous years.
2. Construction: Infrastructure is better than real estate
The business activity index of the construction industry in April 2024 was 56.3%, up 0.1 percentage points from the previous month, while the average month-on-month decline in the same period before the epidemic was 0.2 percentage points. Among them, the business activity index of the civil engineering and construction industry was 63.7%, up 3.9 percentage points from the previous month, driving the construction industry to be better than seasonal.
In terms of sub-indexes, the new orders index fell by 2.9 percentage points from the previous month to 45.3 percent, the business activity expectation index fell by 3.1 percentage points from the previous month to 56.1 percent, but the employment index rose by 0.4 percentage points from the previous month to 46.1 percent.
In terms of infrastructure, the operating rate of asphalt plants in April fell from the previous month, and was lower than the same period in 2021 and 2023, and broadly the same as the same period in 2022. In April, the net financing amount of urban investment bonds was -105.1 billion yuan, and the scale of special bonds (new + refinancing) was about 97.2 billion yuan, both of which were the lowest levels in the year. However, in the fourth quarter of last year, all the new trillions of treasury bonds issued have been issued, which has supported infrastructure investment.
In terms of real estate, in April, the transaction area of commercial housing in 30 large and medium-sized cities decreased by 12.6% month-on-month, and the land transaction area of 100 large and medium-sized cities decreased by 43.8% month-on-month, and the two indicators still fell by more than 40% year-on-year.
3. Manufacturing: External demand is resilient and production is accelerating
The manufacturing PMI in April was 50.4%, down 0.4 percentage points from the previous month, while the average month-on-month decline in the same period before the epidemic was 0.2 percentage points, and the overall performance was slightly weaker than seasonal.
The five major sub-indices rose one and flattened three times. Among them, the production index was 52.9%, up 0.7 percentage points from the previous month, the raw material inventory index was 48.1%, the same as the previous month, the new orders index was 51.1%, down 1.9 percentage points from the previous month, the supplier delivery time index was 50.4%, down 0.2 percentage points from the previous month, and the employment index was 48.0%, down 0.1 percentage points from the previous month.
The manufacturing momentum indicator (new manufacturing orders - finished goods inventories) fell to 3.8% in April, down from 4.1% in the previous month, and the growth momentum fell slightly. Specifically, the operation of the manufacturing industry in April showed four characteristics:
First, the expansion of the demand side has slowed down, but the resilience of external demand is still there. The new orders index fell by 1.9 percentage points to 51.1% in April, significantly weaker than seasonal (down 0.3 percentage points month-on-month on average for the same period before the pandemic), and the new export orders index fell 0.7 percentage points to 50.6%, slightly weaker than seasonal (down 0.4 percentage points month-on-month on average for the same period before the pandemic). External demand is more resilient than domestic demand.
From the perspective of supporting indicators, South Korea's exports in the first 20 days of April increased by 11.1% year-on-year, Vietnam's exports in April increased by 12.4% year-on-year, both remained at a double-digit level, China's export container freight index rebounded for four consecutive weeks, and new export orders in the Caixin PMI in April reached a new high in nearly three and a half years, all of which showed that external demand continued to improve.
The second is to accelerate the expansion of the production side. The production index rebounded by 0.7 percentage points to 52.9% in April, a stronger month-on-month performance than seasonal (the average month-on-month decline was 0.1 percentage points in the same period before the pandemic). External demand remained resilient and ex-factory prices recovered, driving super-seasonal improvement in production.
From the perspective of high-frequency indicators, the operating rate of automobile semi-steel tires rebounded to the highest level since the end of 2014 in April, but the operating rate of all-steel tires fell slightly, and the operating rate of blast furnaces rebounded to the highest level of the year, but the operating rate of chemical products such as methanol, PTA, and PX fell month-on-month.
Third, the willingness of enterprises to replenish inventory has improved. The raw material inventory index was flat at 48.1% in April, and the finished goods inventory index fell by 1.6 points to 47.3%, and the raw material inventory performance was better than the finished product inventory for the first time since September last year. Production and business activities are expected to fall by 0.4 percentage points to 55.2% in April, while the average month-on-month decline in the same period before the epidemic was 1.9 percentage points, indicating that the confidence of manufacturing enterprises is generally stable.
Fourth, the prosperity of small and medium-sized enterprises is better than that of large enterprises. In April, the PMI of large enterprises fell by 0.8 percentage points to 50.3%, the PMI of medium-sized enterprises rebounded by 0.1 percentage points to 50.7%, and the PMI of small enterprises remained unchanged at 50.3%. The prosperity of small and medium-sized enterprises is better than that of large enterprises, mainly because of the stronger role of external demand.
Fourth, the price: the purchase price is stronger than the factory price
In April, the purchase price index of major raw materials rebounded by 3.5 percentage points to 54.0%, and the ex-factory prices rebounded by 1.7 percentage points to 49.1%. Upstream and downstream prices are still on both sides of the 50% threshold, and the gap continues to widen, putting pressure on corporate earnings.
From an international point of view, since April, the CRB index has risen as a whole, with the monthly average rising by 4.9% from the previous month, rising for the fourth consecutive month and the largest increase. Among them, copper prices have reached new highs, and have now exceeded the $10,000 mark, and aluminum prices have also remained above $2,500, indicating that there is strong support on the demand side. Brent crude oil futures prices rose 5.2% month-on-month, the highest increase this year, and briefly exceeded $90 per barrel at the beginning of the month, contributing to the support of the demand side and the supply disruption caused by the turmoil in the Middle East.
Domestically, the South China Industrial Products Index has reached a record high, with an average increase of 3.2% month-on-month in April. Among them, the energy and chemical index rose by 2.4% month-on-month, and the metal index rose by 3.8% month-on-month, both of which were the largest increases in the year. Rebar and cement ended a three-month losing streak and showed signs of bottoming out, but absolute levels remained low, while flat glass prices were still falling. As of April 24, the monthly average of the means of production price index released by the Ministry of Commerce on a weekly basis rose by 0.03% month-on-month, ending the previous five-month month-on-month decline.
Based on the PMI indicators and high-frequency data, it is expected that the PPI will rise month-on-month in April, with a year-on-year decline of -2.3%, narrowing from the -2.8% decline in the previous month. However, the increase in raw materials is even greater, which will increase the cost pressure on manufacturing companies. According to the survey results of the National Bureau of Statistics, the proportion of enterprises reflecting high raw material costs was 46.0%, an increase of 4.2 percentage points from the previous month.
Fifth, the policy: focus on implementation
Judging from the PMI indicators in April, affected by factors such as slowing consumption and sluggish real estate, the economic prosperity has declined, but the economy is still in the recovery range due to strong external demand and infrastructure support. The stimulating effect of external demand is mainly reflected in the acceleration of manufacturing production, the high prosperity of small and medium-sized enterprises, and the rebound of ex-factory prices.
Recently, a number of foreign institutions, including Morgan Stanley, Goldman Sachs, and UBS, have raised their forecasts for China's economic growth this year.
In terms of fiscal policy, the additional 1 trillion yuan of treasury bond funds issued at the end of last year have all been issued to the local government, and it is required to be used up by the end of June, the issuance of ultra-long-term special treasury bonds in the second quarter will start in the second quarter, and the focus of the issuance of new special bonds may be postponed to the second half of the year. The Ministry of Finance said that it will strengthen the overall planning of central and local funds, stock and incremental funds, and form a synergy with ultra-long-term special treasury bond funds to improve the overall efficiency of funds. In addition, in terms of the coordination of fiscal policy, monetary policy, and monetary policy, the Ministry of Finance said that it would "support the gradual increase in the purchase and sale of treasury bonds in the open market operation of the central bank and enrich the monetary policy toolbox."
In addition to the continued recovery of the economy, the room for interest rate cuts is to a certain extent constrained by the narrowing of commercial banks' interest rate spreads and the delay in the timing of interest rate cuts in the United States. The policy focus will continue to be on "precision and effectiveness", promote the expansion of the use of scientific and technological innovation and technological transformation re-lending as soon as possible, continue to optimize the credit structure, and guide the balanced delivery of credit.
In terms of expanding domestic demand, we will continue to focus on equipment renewal and long-standing replacement of consumer goods. Recently, the Ministry of Commerce, the Ministry of Finance and other 7 departments jointly issued the "Detailed Rules for the Implementation of Automobile Trade-in Subsidy", and the Central Bank, the National Development and Reform Commission, the Ministry of Finance, and the State Administration of Financial Supervision jointly held a large-scale equipment renewal and consumer goods trade-in financial work promotion meeting, and the relevant supporting policies are gradually improving.
In terms of reform and opening up, the 26th National Standing Committee of the People's Republic of China called for focusing on the overall situation of development, and continuing to make efforts to create a market-oriented, law-based, and international first-class business environment, and to achieve results. Recently, the U.S. Secretary of the Treasury, Secretary of State, and German Chancellor have visited China one after another, forming a number of consensuses, and the policy will continue to stabilize foreign investment and foreign trade as an important force point, which will help boost social confidence and stimulate market vitality.
In terms of real estate, the vice premier emphasized during the investigation in Zhengzhou that we should focus on the liquidity of real estate development enterprises and pay close attention to solving the blockages in the implementation of the urban real estate financing coordination mechanism, which will play a key stabilizing role in alleviating the financing problems of real estate enterprises and solving liquidity problems. At present, except for the four first-tier cities and core areas such as Hangzhou (new housing), Tianjin, and Xi'an, which still maintain purchase restrictions, other cities have lifted purchase restrictions. Recently, foreign institutions have turned to the real estate market, and real estate stocks have bottomed out.
With the Politburo meeting at the end of April ahead of the meeting, more detailed policy guidance is expected, and overall, we believe that the most difficult time for China's economy is behind us, and growth will continue to return to potential growth levels.