Li Chao is a director of the China Chief Economist Forum and the chief economist of Zheshang Securities
Summary of content
Core ideas
In October, the PMI index of the manufacturing industry fell by 0.4 percentage points to 49.2%, continuing the downward trend. Among them, the production index fell by 1.1 percentage points to 48.4% in October, and the enthusiasm for industrial production further cooled under the background of dual control of energy consumption. The new orders index fell by 0.5 percentage points to 48.8% in October, and demand maintained a contractionary trend; export orders rebounded slightly or were related to the return of orders caused by the global rebound in the epidemic and the recovery in demand for anti-epidemic materials, which was weak in sustainability. Since April, the PMI has fallen for 7 consecutive months and is in the contraction range for two consecutive months, indicating that the downward pressure on the economy is relatively large, and we expect monetary policy to continue to be accommodative during the year, which in turn will drive the stock and debt bulls.
Energy consumption double control power rationing and production rationing, production index continued to weaken
In October, the production index fell by 1.1 percentage points to 48.4%, and the enthusiasm for industrial production was further cooled under the requirements of double control of energy consumption and "steel to look back at production capacity". High-frequency data show that the reduction of steel production in October continued to advance, the blast furnace operating rate fell to 53.7% (68.3% in the same period last year), the crude steel production of key enterprises in October fell by 14% year-on-year, and the output of wire rod and rebar of major steel mills in the country fell significantly. Under the background of dual control of energy consumption, although the one-size-fits-all power ration has been corrected, the production limit requirements of the double high industry are still high, and the operating rate of most industries in October continued to decline, and the average daily coal consumption of the eight southern provinces continued to decline. In addition, the increase in electricity prices has also inhibited the production enthusiasm of enterprises from the cost side.
The order index continued to fall, and the downward pressure on the economy increased
The new orders index fell 0.5 percentage points to 48.8% in October, and demand continued to fall. Among them, the index of new export orders rebounded slightly, while the purchasing index continued to decline, proving that the decline in domestic demand was even greater. High-frequency data show that in October, the transaction area of commercial housing in 30 large and medium-sized cities fell by 12% month-on-month, and the year-on-year decline was still deep; the wholesale and retail data of passenger cars fell month-on-month, and the lack of core problems limited the release of car purchase demand. The new export order index rebounded slightly by 0.4 percentage points to 46.6, but it is still in a deep contraction range, and from the perspective of industry data, new export orders for special equipment, textile and clothing, and pharmaceutical manufacturing have rebounded by a large margin. The global epidemic re-emerged in August and September, and the epidemic situation in Southeast Asian countries such as Vietnam and Malaysia is also more serious, and we judge that the slight recovery of export orders may be related to the return of some orders and the recovery of demand for anti-epidemic materials, and the sustainability is weak.
The price index rose again, and the trend of active destocking appeared
In October, the price index of major raw materials purchased rose sharply by 8.6 percentage points to 72.1%, and the ex-factory price index rose by 4.7 percentage points to 61.1%, and the price index rose again, which was larger than that in September, indicating that the PPI growth rate in October may break 12% year-on-year. On the one hand, the dual control of energy consumption has promoted the price of high-energy-consuming industrial products such as cement and chemicals to continue to rise, on the other hand, affected by the "La Niña" strengthening the expectation of rising energy prices, the shortage of natural gas in Europe and the relaxation of the travel ban in the United States, crude oil prices remain high, and imported inflation pressures have not weakened. In terms of inventory, the raw material inventory index and the finished product inventory index both declined, and the demand side recovery in the fourth quarter was limited and the energy consumption double control suppressed production, prompting industrial enterprises to turn to active warehouse.
The pressure on stable growth has gradually increased, and monetary policy has been relaxed
In October, the PMI continued its downward trend, supply and demand were weak, and the pressure for stable growth gradually increased. Dual control of energy consumption and other carbon neutral policies have promoted upstream raw materials to maintain a tight balance between supply and demand, and commodity prices and midstream and downstream raw material costs have been at a high level for a long time. Commodity prices rose sharply, the operating pressure of small and medium-sized enterprises was relatively large, the PMI of medium-sized enterprises continued to decline in October, and the PMI of small enterprises was in the contraction range for 6 consecutive months. We believe that the internal cost of promoting dual control of energy consumption and other carbon neutral policies is the need to help companies reduce costs through monetary easing, among other things. We expect monetary policy to continue to be loose during the year, and the central bank needs to help alleviate the pressure on middle and lower reaches of enterprises through refinancing, RRR cuts, targeted interest rate cuts, etc., so we expect monetary policy to continue to be loose during the year, which in turn will drive the double bull of equity and debt.
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