PMI continued its expansion momentum in the first month of 2017 and the economy is expected to start smoothly this year

According to the data recently released by National Bureau of Statistics, China's manufacturing purchasing managers index (PMI) was 51.3% in January 2017, slightly down 0.1% over last month, but maintaining more than 51.0% for four consecutive months, and also keeping in the top of the entrepreneurs confidence threshold for six consecutive months, and it has been a high point over the same period since 2012. A steady expansion trend was continued.

According to the 13 sub-indexes, the production index remained at a higher level of more than 53%, and industrial operations continued to remain in the boom range. In addition, the indexes such as finished goods inventory, purchase volume and import have increased.

This year's economic operation is expected to start smoothly

Chen Zhongtao from China Logistics Information Center said that PMI was 51.3% in January, down only 0.1% over last month and that the trend was basically stable. Combined with the sub-indexes, the economic start in 2017 is good, and the supply and demand maintains a balanced growth; business is expected to be good, and pre-holiday stocking is positive; industry fundamentals remain a resilient recovery, and structural optimization continues to develop in depth.

Zhang Liqun, researcher at the Development Research Center of the State Council, analyzed that though the PMI index was decreased in January, the expected increase in production and business activities indicates that industrial enterprises are expected to be more stable in the future market and are more prepared for the production and operation after the Spring Festival. Based on the comprehensive judgment, this year's economic operation is expected to start smoothly.

Zhao Qinghe, senior statistician from the Service Survey Center of National Bureau of Statistics said that PMI mainly presented four characteristics in January: One, the grow rate of production and market demand in the manufacturing industry slowed down due to the Spring Festival holiday; second, both the purchase price and the ex-factory price of the main raw material declined; third, the pace of the manufacturing industry to the medium-end and high-end continued to accelerate; fourth, imports and exports rebounded slightly.

It is noteworthy that a number of indexes revealed a number of positive economic factors. For example, the production activities of large and medium-sized enterprises were still active, and the equipment manufacturing and high-tech industries were not affected by the Spring Festival and continued to rise.

Data show that PMI of large enterprises was 55.1% in January, which continued to remain at a high level; PMI of medium-sized enterprises rose by 2.3% over last month, reaching 53.1%.

While the manufacturing industry continued to expand, the non-manufacturing industry also maintained a steady growth momentum. Data show that the non-manufacturing PMI was 54.6% in January, up 0.1% over the previous month.

“This year’s non-manufacturing economic activities started well, and has continued the steady and rapid development trend since the second half of last year.” Wu Wei from China Logistics Information Center believed that the driving force for the development of the non-manufacturing industry, especially the service industry will gradually increase along with the increase in consumer spending, the improvement of consumer environment and the gradual upgrading of consumption.

Ren Zeping, chief economist of Founder Securities said that large enterprises continued to be better than small businesses. In 2016 the economic small-cycle recovery was mainly driven by real estate, infrastructure construction and heavy chemical industry, so large enterprises continued to be better than small businesses, but the recent real estate cycle peaked, and PMI of the big business began to fall.

Economic growth still faces many problems

Despite the steady economic operation, economic growth is still facing many problems according to the PMI sub-indexes.

Statistics show that the purchase price index in the manufacturing PMI has basically continued an upward trend since last year, and has maintained above 60% for four consecutive months until January this year. But with a sharp contrast, the ex-factory price index formed an obvious upward trend only in the fourth quarter of last year, and reversed in January this year, down more than 4% to 54.7%, which was nearly 10% lower than the purchase price index.

Chen Zhongtao from China Logistics Information Center said that the willingness of enterprises to expand their production would be affected if this "one high and one low" situation was intensified.

Zhao Qinghe said that the survey showed that more than 40% of the enterprises still expressed the shortage of funds and the lack of market demand, and that reducing financing costs and expanding the effective demand were still key factors to consolidate the real economy to be stable and good. At the same time, affected by employees’ returning home for the Spring Festival holiday, the proportion of enterprises reflecting the increase in labor costs and supply shortage of labor force increased.

Chen Zhongtao pointed out that the problems worthy of attention in the current economic operation were mainly fast rising of upstream product prices, increase in enterprises’ production costs, difficult rise of finished product prices and narrow corporate profit margins.

Chen Zhongtao said that China should focus on improving the market environment and enhancing the microeconomic vitality to maintain a stable and good macroeconomic situation in 2017. On the one hand, China should moderately expand the aggregate demand and increase business orders; on the other hand, China should promote the reform of the supply side, reduce the overall cost of enterprises and improve corporate profitability.

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