Supply Side Reform: The Capacity Of The Cycle Industry Will Continue To Develop.

In the first half of 2017, China's economy was improving steadily, and China's economic growth was expected to be raised for the two time in IMF.

When the structural reform of the supply side continues to deepen, what is the expected market clearing in the industry? What is the trend of China's economy in the second half? Yu Ying, chief economist of Chung Cai consulting, said in an interview with the China Securities Journal reporter that 2017 was the "clearing era".

From the PMI industry data, the orders and prices of the cyclical industry show second upward fluctuations, and finished inventory has experienced second downward fluctuations. This anti season order price rebounded, which means that the industry concentration is rising, the pricing power of enterprises is stronger, and the clearing process is going to be more than half.

Planning, founded in 2005, is a professional advisory body dedicated to macroeconomic, industry and market research. When it was founded, it exclusively undertook the operation of PMI data projects.

In recent years, macroeconomic forecast analysis has been made on the impact of economic pformation on GDP and industry composition, and the steady rise and recovery of industrial profits in the past 2015-2017 years, including the June 2014 historical bottom judgment, the June 5, 2015 reminders and the spring Market in 2017. The consultation has repeatedly successfully predicted the macro economic cycle and the inflection point of the stock market, and conducted a variety of empirical research on stock market and fundamentals.

Yu Ying believes that the current PMI data has become an important basis for macroeconomic decision-making and financial investment. The trend of PMI industry data and stock index in various industries has been closely related for many years. The correlation coefficient of most industries reaches or exceeds 0.6.

"Market clearing" is on the way.

Reporter: PMI has been judged.

Yu Ying: we believe that in the past 2012-2018 years, China's manufacturing industry has gradually pformed and upgraded.

The starting point of this process is that the PMI finished goods inventory reached the highest point in 2012, and the non cyclical industries and private enterprises began to change. During this period, they experienced the pformation and upgrading of various industries, and each industry experienced about 2-4 years of pformation time. The end point will be 2017-2018 years of state-owned enterprises with high proportion of industry restructuring and industrial concentration.

2017 is a key year for China's economic structural pformation, especially in the process of clearing up, concentrating, improving quality and increasing efficiency in the cyclical industry, which is closely related to the overall economy going out of the bottom of L.

Of course, this rally is not a V rally. In the wake of late consumption as the main contributor, the GDP rally we mentioned is slightly raised at the bottom.

Specifically, the timing of production clearance in different industries is different, but the path is basically the same. It generally goes through high inventory - inventory - low price competition - inventory management level competition - a large number of failures - quality enterprise survival - debt restructuring - technology input competition - industry concentration improvement - industry upgrading into the 3 era (zero inventory management) - the process of improving industry efficiency.

From the path of upgrading the non cyclical industry in the past five or six years, we can deduce the process of the clearing and upgrading of the cyclical industries. Combined with the types of industrial enterprises, types of debts and policy processes, we judge that 2017 is the year of clearance for the cyclical industry, and its pformation and upgrading will be realized in the second half of 2017, and the efficiency will rebound in 2018.

From the perspective of enterprise type, there are more SMEs in the non cyclical industry, small enterprises have begun to pform since 2012, and most of them are large enterprises in the cycle industry, and large enterprises have begun pformation since 2015.

In the process of industry and enterprise pformation, technological upgrading is very necessary, but only large enterprises have sufficient funds and strength to invest in scientific research, equipment and technology upgrading. Therefore, only when market capacity is cleared and market concentration is raised, will it help the remaining high-quality enterprises to invest in scientific research, improve their profits and form a virtuous circle of improving quality and increasing efficiency.

The non cyclical industry has basically completed its clearance.

Reporter: what is the basis for judging the "clearing" of the non cyclical industry?

Yu Ying: first of all, high inventory and overcapacity forced the industry to clear and integrate, achieve industrial concentration, increase investment in science and technology, and increase the added value of industrial production.

Secondly, the effect of increasing investment in science and technology is the upgrading of industries and the zero inventory management of manufacturing industry.

China's manufacturing industry has been upgrading to 3 refined production since 2012. More and more enterprises adopt supply chain management to reduce inventory level, and enterprises that cannot upgrade technology gradually withdraw from competition.

Among them, the industries involved in light industry, consumption and IT technology, with small scale and rapid technological pformation, are closer to zero inventory management earlier.

With the upgrading of technology management level, data performance is that the level of industrial orders to inventory is weakened from weak to strong.

In 2012, the finished product inventory lead order reached a record high of 93%, and the order was determined by finished inventory.

This means that the overall economy will be dominated by the elimination of inventory.

After 2015, orders for most industries had dominated the finished goods inventory, while the order dominated inventory of cyclical industries began to appear in 2016.

Therefore, in the leading indicators of PMI, according to the stages of the correlation between finished goods inventory and orders, China's economy has gone through several stages in the past ten years. Before 2007, stocks and orders were not correlated with the same order. In 2008, inventory lag was highly correlated with new orders. From 2009 to 2012, stocks decided to order, and 2013 to 2015 inventory decreased decisively to orders, and orders began to decide stocks since 2013.

Taking the textile industry with the earliest pformation and clearing as an example, in the past 2011-2013 years, the relative ranking of PMI data has been less than three in the manufacturing sector, of which the PMI value of the peak season is only about 45, with the stock being as high as 60.

In October 2014, the textile industry PMI exceeded 50.

In June 2015, for the first time in 4 years, the textile industry rose for the first time in the same period as the upstream and downstream industries, and PMI reached 56.5.

In 2016, the total profit statistics released by the Statistics Bureau (PMI lag 6 months) showed that the textile industry's efficiency ranked first in the top five in recent years.

At the same time, we learned from the enterprise survey that during the 3 years of storage, clearing and integration, 80% of the enterprises in the industry failed, and only a small number of high quality and efficient enterprises survived.

With the increase of industrial concentration, leading enterprises in the industry get more capital and willingness to invest more and more in the process of production and production process, thus improving the industry efficiency.

In addition, paper printing, general equipment, pharmaceutical manufacturing,

Chemical fiber, electrical machinery and other industries, at different times, and different degrees of replication of the textile industry data evolution process.

Cyclical industry clearing process will be more than half

Reporter: what is the "clearing" process of the cyclical industry?

Yu Ying: the liquidation of the cycle industry is obviously lagging behind other industries. The main reason is that different industries have different production capacity and capital structure.

From the point of view of capacity, the process of capacity development in non cyclical industries, such as light industry, is close to completion.

The problem of overcapacity in the cyclical raw material industry has not been eradicated. The market demand is often blocked by sales and the price is falling because of excessive supply. This process continues until the end of 2015. At the same time, because of various factors of capital structure, the process of production capacity of enterprises is not smooth, thereby dragging down the effectiveness of overall capacity production.

The cycle industry started clearing at the end of 2016.

After going through inventory, capacity and efficiency, the industry will usher in a chance to clear up and restructure.

The supply and demand relationship has improved to provide the best time window for improving quality and efficiency, and the state has formulated corresponding policies to improve the quality standard of product supply, which has become a key measure for further upgrading of the industry.

Last year, we published the article "seize the time window to improve quality and efficiency, deepen the supply side reform", and it is also a way of thinking about how to promote excess capacity clearing.

At present, according to the anti season rebound of PMI in the raw material industry in May, we can judge that the industry concentration degree is rising, the pricing power of enterprises is stronger, and the clearing process is going to be more than half.

First of all, cyclical industries appeared in October 2016 and November, highlighting orders and prices, purchasing prices and purchasing volume has reached a peak.

It is under the pressure of market downturn that policies are further pressured, and technical competition among enterprises has been launched, forcing inefficient enterprises to withdraw from the market.

Secondly, in May, some industries rebounded against the seasonal orders, while some prices rebounded and finished products inventory remained low. Most industries PMI were significantly better than last year and previous years, and the raw material industry ranked first in the big category.

Due to the obvious overdraft of the initial procurement, the cyclical industry has been adjusted in the downward pressure. We believe that the rebound marks the process of capacity development and technological upgrading at the enterprise level, and the pricing power of the industry is enhanced and the concentration degree is improved.

We learned from the PMI survey that under the constraint of the supply side reform policy for more than a year, a series of changes have taken place in the traditional production mode, and the level of inventory management and technology level has been greatly improved.

In addition, the PMI rebound in raw material industry shows that supply and demand relations have improved.

For example, the sharp rise in oil coking orders has a strong international background. The black line is a demand factor with limited production and infrastructure construction.

The follow-up need to focus on the July and August cycle industry orders, if the order performance is not bad at that time, shows that the progress of production clearance is relatively smooth, at the bottom of our economic stage or at the end of the year.

Clearing is the bottom line without triggering financial crisis.

Reporter: but in the process of capacity development, we also see some low-end production capacity to "revive" when demand is warmer.

Yu Ying: because the cyclical industries are mainly state-owned enterprises and large enterprises, taking into account the factors of social stability such as employment, it is impossible for them to go bankrupt and bankrupt in large numbers.

This is also the main reason for pushing forward the reform of state-owned enterprises and central enterprises.

In addition, it should be noted that clearing out the financial crisis is the bottom line.

The biggest obstacle to the capacity of state owned enterprises is not excessive government intervention, but debt.

Under the pressure of huge losses, banks will not break rigid payment, they can not sit on bad debts and affect the bank's loss statement.

The efforts of the central bank are in line with the market orientation. The goal is to increase financial pressure and force enterprises to clear up.

However, if all of them are handed over to the market and concentrated bankruptcy occurs, it is very likely that the capital chain will break up. The collapse of Domino will lead to great economic and social pressure, and a large number of high-quality resources will be occupied before the cycle industry. If combined with market funds, the potential is still huge.

Therefore, mixed reform is the key to solving the problem of clearing up, and the capital market has given high attention.

The introduction of private capital to expand the operating space of high-quality enterprises with high-quality capital is conducive to the increase of scientific research investment and the upgrading of the quality and efficiency of the industry.

At the same time, the separation of property rights and management rights, poor stripping, also conducive to the smooth restructuring of the bank debt.

At present, all kinds of mixed reform measures are not only supported by social funds, but also will be actively responded to in the capital market.

In addition, we believe that consumption will eventually replace exports and investment as the backbone of GDP.

Long term consumption upgrading is not only the result of optimizing the economic structure, but also the way to solve it. However, how to absorb a large number of jobs from the surplus industry is also an urgent problem.

We believe that the contribution of the middle and low income groups to consumption promotion is even greater, and the total consumption demand and domestic demand for manufacturing industry will be considerable.

In particular, the self service and peripheral consumption of the three or four line cities will, to a large extent, absorb the employment of the workers who are out of the manufacturing sector on the one hand, and on the one hand, contribute to the steady growth of the economy.

Far from the future, the majority of consumption contribution and GDP down will reach a new equilibrium point.

However, due to the huge volume of old investment, excessive contraction may lead to debt chain breaking and explicit urban unemployment.

Therefore, in the current adjustment period, we should give positive financial policies and flexible monetary policy support, vigorously promote consumption upgrading, manufacturing industry upgrading and various enterprises' innovative activities.

In short, the only reason why growth is stable or steady growth is that there is a hidden danger in the debt chain and employment situation in the three phase of superposition, but there are also solutions.

Without triggering a large-scale debt crisis, clearing excess capacity as soon as possible is a good economic cycle.

We believe that, according to the current development trend, the production capacity of the cyclical industry will continue to develop, and with the formation of new consumption and new credit methods, we will be able to see the economic upgrading and the complete recovery of L's right side.

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