Analysis of China's Macroeconomic Situation in 2019 and Outlook for 2020
In 2019, faced with a complex and severe internal and external situation, China continued to deepen supply-side structural reforms, increase counter-cyclical adjustments, and focus on doing a good job of "six stability" work, and the economy operated relatively steadily. In 2020, downward economic pressure still exists, but cyclical factors may have a positive impact, coupled with the continued efforts of counter-cyclical adjustment policies, the downward economic pressure is expected to weaken.
I. China's economic operation was generally stable in 2019
In 2019, China's economy generally maintained a stable operating trend, and many positive changes occurred in the economic operation: First, economic structure optimization and upgrading continued to advance; second, industrial structure optimization and adjustment achieved real results; third, the dividend of tax reduction and fee reduction policies was significant; fourth, the "three stability" control target of the real estate market was steadily implemented. However, it also faces challenges such as increasing downward pressure on the economy, moderate slowdown in industrial operation, faster rise in price level, weak investment demand, unstable consumption demand, and increasing regional growth imbalance.
(I) Many positive changes have occurred in economic operation
Facing the new normal of the economy, China no longer blindly pursues high growth, but instead pursues structural optimization under a reasonable economic growth rate, and focuses on achieving high-quality economic development. In the first three quarters of 2019, China's economy generally maintained a stable operating trend, and many positive changes occurred in the economic operation.
1. The economic structure continues to be optimized, and the contribution rate of consumption has increased significantly. In the first three quarters of 2019, China's tertiary industry grew by 7% year-on-year, 1.4 percentage points higher than the secondary industry. The added value of the tertiary industry accounted for 54% of the economy, an increase of 0.6 percentage points from the same period in 2018, 14.2 percentage points higher than the secondary industry. The contribution rate of the tertiary industry's growth to GDP growth was 60.6%, 24.3 percentage points higher than the secondary industry, and the industrial structure was further optimized. From the perspective of demand structure, the contribution of consumption has increased significantly. In the first three quarters, final consumption expenditure boosted GDP growth by 3.8 percentage points, contributing 60.5% to GDP.
2. Industrial structure optimization and adjustment, and the continuous growth of new driving forces. The industrial structure continued to be optimized. In November 2019, the added value of equipment manufacturing and high-tech manufacturing increased by 8.5% and 8.9% year-on-year, respectively, 2.3 and 2.7 percentage points higher than the total above-scale industrial enterprises. The development of emerging industries continued to accelerate. In November, the added value of medical instrument and equipment manufacturing and electronics and communication equipment manufacturing increased by 12.6% and 10.8%, respectively, 6.4 and 4.6 percentage points faster than the growth rate of above-scale industrial added value. The output of solar cells and integrated circuits increased by 23.0% and 18.2%, respectively.
3. Tax reduction and fee reduction are accelerating, promoting the sustained and healthy development of the economy. In the first three quarters of 2019, China's cumulative new tax cuts and fee reductions reached 1.7834 trillion yuan, including 1.5109 trillion yuan in new tax cuts and 272.5 billion yuan in new social security fee reductions. The tax reduction and fee reduction policies have fully exerted the counter-cyclical adjustment effect of fiscal policy, playing a positive role in reducing corporate costs, supporting private enterprises, promoting enterprise innovation and development, and boosting market confidence. Statistics show that in the first three quarters of 2019, the tax burden levels of various industries in China have all decreased to varying degrees year-on-year; private economy taxpayers have received an additional 964.4 billion yuan in tax cuts, accounting for 64% of the total new tax cuts; under the dividend of tax reduction and fee reduction policies, enterprises are more active in R&D investment, and the R&D expenditure of 100,000 key tax-source enterprises monitored by the tax authorities increased by 19.3% year-on-year, an increase of 3.4 percentage points compared to the whole year of 2018.
4. The real estate market is operating steadily, and the "three stability" control target is steadily implemented. At the beginning of 2019, the Ministry of Housing and Urban-Rural Development listed the work of "stabilizing land prices, house prices, and expectations" as the top priority of its annual key work. Under the guidance of the "housing for living, not for speculation" control tone, China's real estate market generally maintained a stable operation, and the "three stability" control target was steadily implemented. The heat of the land market has cooled down. In the first three quarters of 2019, the income from the transfer of state-owned land use rights increased by 5.8% year-on-year, a significant decrease of 19.2 percentage points compared with 25% in the same period of 2018. Commodity housing transactions were stable, and house price increases slowed significantly. From January to November, the sales area of commercial housing increased slightly by 0.2% year-on-year; the average selling price of commercial housing increased by 7.1% year-on-year, a decrease of 3.6 percentage points compared with the whole year of 2018. Residents generally expect stable house prices. In the third quarter of 2019, 50.3% of residents expected house prices to "remain basically unchanged" in the next quarter, remaining above 50% for the third consecutive quarter, while the proportion of residents who expected prices to "rise" decreased by 4.4 percentage points compared with the same period in 2018.
(II) Several outstanding problems still exist in some areas
While positive changes have occurred in the economic operation, structural challenges and risks in some areas are also worth noting.
1. The leverage ratio of the real economy has risen again, and the leverage ratio of residents and private enterprises has risen rapidly. Since the second half of 2018, the leverage ratio of the real economy has risen again. In the third quarter of 2019, the leverage ratio of the real economy was 251.2%, up 7.5 percentage points from the end of 2018. Among them, the leverage ratio of the residents sector increased the most. For residents, a rapid increase in the leverage ratio will significantly suppress residents' willingness to consume, which is not conducive to building a strong domestic market. From the perspective of the non-financial enterprise sector, with the increasing downward pressure on the economy, the deterioration of private enterprise profits and the tightening of the financing environment have led to a significant increase in the asset-liability ratio. In October 2019, the asset-liability ratio of private industrial enterprises was 57.9%, an increase of 6.5 percentage points from the low point at the end of 2017. Considering that private enterprises will bear higher real interest rates in the environment of PPI deflation, it is expected that private enterprises with a rapid increase in leverage ratio will face greater debt risks.
2. The employment situation is generally stable, but some structural contradictions cannot be ignored. In November 2019, the registered unemployment rate in urban areas was 5.1%, while the registered unemployment rate for the population aged 25-59 was lower, at 4.6%. From the data, the registered unemployment rate for the population aged 25-59 showed a downward trend in the first 11 months of 2019, and the employment situation was good. However, employment among young people under 25 and college graduates was relatively sluggish, highlighting the structural contradictions in the current supply and demand of jobs. The reason is that, on the one hand, the job requirements of some young job seekers far exceed their own abilities, and they are too high in their job selection, making it difficult to find suitable jobs. Many new-generation workers pay more attention to quality of life, freedom, and development opportunities, which has to some extent led to voluntary unemployment. On the other hand, the current universities offer graduates with little difference, poor employment abilities, and prominent homogeneous competition, which is inconsistent with the diversified needs of the market. Moreover, the huge gap between the employment expectations of many graduates and the actual social demand is also an important reason for the current difficulties in the employment of college graduates.
3. The financing problem of private and small and medium-sized enterprises remains prominent. Strict financial supervision has prompted financial institutions to tighten loans, and the significant difference in market position and credit rating between private and small and medium-sized enterprises and state-owned enterprises has caused private and small and medium-sized enterprises to rapidly contract loans. Moreover, with the standardization of financial products and the rapid shrinkage of off-balance-sheet financing, many private and small and medium-sized enterprises that heavily rely on off-balance-sheet financing have also suffered from financing shocks. Since 2019, the central bank has used monetary policy tools such as reserve requirement ratio cuts and LPR (Loan Prime Rate) cuts to carry out counter-cyclical adjustments, which has led to improved financing environment. However, in this process, it is mainly state-owned enterprises that benefit from the improvement of the financing environment, while the financing situation of private and small and medium-sized enterprises remains severe, and the credit spread difference between private enterprises and central and local state-owned enterprises remains at a historical high. In November 2019, the credit spread differences between private enterprises and central and local state-owned enterprises were 215.70 and 169.82 BP, significantly higher than the historical average of 140.13 and 91.40 BP.
The unsustainable nature of the decline-type trade surplus, and the weakening effect of net exports on economic growth. In the first three quarters of 2019, the trade surplus reached 2046.1 billion yuan, a year-on-year increase of 44.2%, boosting GDP by 1.2 percentage points. The expansion of the trade surplus in 2019 was mainly due to a decline-type surplus, i.e., both imports and exports decreased, with imports declining more sharply. It is expected that with the reaching of the first phase of the China-US trade negotiations, the country's expansion of imports, and improvements in domestic demand, imports are expected to rebound, the trade surplus will narrow, and the driving effect of net exports on economic growth will significantly weaken.
II. The downward pressure on the economy in 2020 is expected to weaken
(I) The economy is expected to see some positive changes
In the first three quarters of 2019, GDP grew by 6.2% cumulatively, with 6.0% growth in the third quarter, lower than the 6.2% in the second quarter. Nominal GDP grew by 7.6% year-on-year in the third quarter, a decrease of 0.7 percentage points from the second quarter.
After model analysis of the third-quarter economic data, it was found that the potential economic growth rate maintained a downward trend, and the cyclical effect on the economy continued to decline. From the long-term trend of economic growth, the current potential economic growth rate is still showing a downward trend, with the potential economic growth rate in the third quarter falling from 6.05% in the first quarter to 5.91%. In 2019, with the continued weakness of the domestic and international economic situation, the cyclical effect on the economy gradually decreased, with cyclical boosts in the first three quarters of 0.35, 0.24, and 0.09 percentage points, respectively. Referring to the law of the previous Kitchin cycle, the downward phase of the cycle lasts about two years. From a time point perspective, the economy is expected to see positive changes in the first half of 2020. Considering the counter-cyclical adjustment effect of government macroeconomic policies, the downward pressure on the economy in 2020 is expected to be weaker than in 2019.
From the perspective of the "three engines" of economic growth, it is expected that investment growth will further decline in 2020, consumption will rebound slightly, and the contribution of net exports will decline. Although consumption will rebound slightly, it still cannot fully offset the negative impact of the decline in investment and net exports. The economy will continue to be under pressure, but the pressure will be weaker than in 2019. GDP growth is expected to be around 6.0% in 2020.
(II) CPI still has room for upward movement
Soaring pork prices have driven a rapid rise in CPI, and there is still room for further increases. Since the beginning of 2019, affected by soaring pork prices, the year-on-year growth rate of CPI has continued to rise. In November, CPI rose by 4.5% year-on-year, the highest since 2012. According to the data, pork prices rose by 110.2% year-on-year in November, affecting CPI by about 2.64 percentage points, which is the main reason for the rise in CPI. Pork prices will still be the main factor affecting the short-term trend of CPI in the future. It is expected that pork prices will remain high or even rise further in the short to medium term, and under its impetus, CPI is expected to rise further in the first quarter of 2020.
PPI continues its deflationary trend and will remain under pressure in the future. In November 2019, PPI continued its sluggish trend, falling by 1.4% year-on-year, and cumulatively falling by 0.3% year-on-year from January to November. Looking ahead to 2020, in the face of weak domestic and international demand, PPI is expected to remain sluggish and unable to escape the deflationary range. On the one hand, international demand continues to be under pressure and shows no sign of recovery. At present, the growth rate of global export trade volume has turned negative, the long-term confrontation trend of disputes between China and the United States in various fields is difficult to change, and Brexit remains uncertain. On the other hand, domestic demand is still constrained by the downward pressure on the economy and is difficult to make a significant improvement.
(III) Downward pressure on investment remains
1. Burdened by real estate, fixed asset investment will face pressure in the future. From January to November 2019, the year-on-year growth rate of fixed asset investment was 5.2%, down 0.7 percentage points from the whole year of 2018. Among them, the growth rate of manufacturing investment fell by 7 percentage points to 2.5%; the growth rate of real estate development investment rose by 0.7 percentage points to 10.2%; and the growth rate of infrastructure investment rose slightly by 0.2 percentage points to 4%. Looking ahead to 2020, among the constituent elements of fixed asset investment growth, infrastructure investment and manufacturing investment are expected to rebound, but real estate investment may decline. It is expected that fixed asset investment growth will be under pressure in 2020.
2. Real estate investment maintains relatively strong resilience, but future prospects are not optimistic. From January to November 2019, the cumulative year-on-year growth rate of real estate investment was 10.2%, up 0.7 percentage points from the whole year of 2018. The Central Political Bureau meeting held on July 30 proposed that "real estate should not be used as a short-term means to stimulate the economy," indicating that the decision-making layer has decoupled real estate from steady growth, and the possibility of a significant relaxation of real estate regulation policies is quite limited. Coupled with the current decline in the willingness of real estate companies to purchase land and the tightening of real estate financing channels, real estate investment is expected to face significant downward pressure in 2020.
3. Infrastructure investment data shows a moderate rebound, but the upward margin is limited. From January to November 2019, infrastructure investment (excluding electricity) grew by 4.0% year-on-year, slightly higher than 0.2 percentage points from the whole year of 2018. Infrastructure investment has always been an important lever for steady growth during the downward phase of China's economy. However, affected by tax cuts and fee reductions and the strengthening of supervision over local government implicit debt, the growth of local government fiscal revenue has been relatively sluggish, and the growth of infrastructure investment in this round has been lower than market expectations. Looking ahead to 2020, under the intensified counter-cyclical regulatory policies, coupled with the catalysis of the early issuance of local special bonds, infrastructure investment is expected to rebound. However, considering the rigid constraints of strictly controlling local government implicit debt, resolutely curbing the increase in implicit debt, and strictly prohibiting disorderly debt-raising for construction, coupled with the fact that non-standard financing for infrastructure is still restricted and the reserves of key infrastructure projects are relatively limited, the future upward margin of infrastructure investment is expected to be limited.
4. Manufacturing investment remains sluggish, and a fluctuating rebound is expected in the future. From January to November 2019, cumulative year-on-year growth of manufacturing investment was 2.5%, a significant decrease of 7 percentage points from the same period in 2018. It is expected that manufacturing investment will show a fluctuating rebound in 2020. On the positive side, firstly, the government attaches great importance to the financing difficulties of private and small and medium-sized enterprises, which are the main body of manufacturing enterprises, and relevant relief policies have been successively introduced, and the difficulties and high costs of financing for private and small and medium-sized enterprises may be alleviated; secondly, tax cuts and fee reductions reduce the costs of manufacturing enterprises and stimulate the development momentum of enterprises; thirdly, the Central Political Bureau meeting held on July 30, 2019 clearly proposed to "stabilize manufacturing investment," and relevant policies and measures are being implemented successively, which is conducive to policy support for manufacturing investment. On the negative side, firstly, weak global economic growth and repeated Sino-US trade frictions have negatively impacted exports; secondly, the current sluggish profits of industrial enterprises significantly suppress manufacturing investment; and thirdly, the current Juglar cycle is in a downward phase, and the upward momentum of manufacturing investment is weak.
(IV) Consumption is expected to improve moderately
From January to November 2019, the total retail sales of consumer goods increased by 8% year-on-year nominally, down 1 percentage point from 2018, mainly due to a sharp decline in automobile sales. In 2020, with the implementation of relaxed car purchase restrictions in various cities and the acceleration of the circulation of the used car market, the continuous downward trend of automobile consumption is expected to be alleviated to a certain extent. In addition, the government has also taken a series of measures to boost consumption. However, due to the rapid increase in household leverage and the low level of household income growth, it is expected that consumption will improve moderately in 2020, but it will be difficult to rebound significantly.
(V) The scale of the trade surplus is expected to shrink
In US dollar terms, from January to November 2019, the total value of imports and exports decreased by 2.3% year-on-year, with exports and imports falling by 0.3% and 4.6% respectively. Compared to the whole of 2018, this represents a decrease of 10.2 and 20.3 percentage points respectively. The repeated escalation of trade friction between China and the US has had a significant impact on trade between the two countries. From January to November, China's exports to the US fell by 12.5%, dragging down China's overall export growth by 2.4 percentage points. The slowdown in global economic growth and weak international demand also constrained China's exports. The main reason for the sluggish imports is weak domestic demand. Looking ahead to 2020, with global economic slowdown, repeated fluctuations in US-China trade friction, and a high base for exports, the outlook for exports is not optimistic. However, considering that counter-cyclical macroeconomic policy adjustments are expected to continue to be intensified, coupled with strong tax reduction policies, consumer stimulus policies, and infrastructure investment to support domestic demand, the pressure on import growth will be reduced. At the same time, the continued promotion of import expansion, combined with the acceleration of opening up, is expected to lead to a rebound in imports in the future. Overall, exports are expected to be less optimistic in 2020, imports are expected to improve, the trade surplus will shrink, and the contribution of net exports to economic growth will be less than in 2019.
Leaders from Xiamen C&D Group visited Tongzhou for investigation and guidance
On March 3, Wang Yongqing, Vice President of Xiamen CNOOC Group, visited Tongzhou Group for investigation and guidance. Wei Gangmin, Chairman of our company; Huang Hongyu, President; Li Tao, Vice President; and Zhang Zhiyan, Director of the General Office, met with and participated in a symposium.
Tongzhou Cotton Market Brief, Week 1 of March 2025
1) This week's National People's Congress and the Chinese People's Political Consultative Conference (NPC & CPPCC) in China boosted market expectations for steady growth. In February, the Purchasing Managers' Index (PMI) for manufacturing stood at 50.2%, up 1.1 percentage points from the previous month, indicating a significant improvement in the manufacturing sector.
In 2024, China's dyeing industry saw rapid export growth to ASEAN and RCEP member countries, exceeding the overall export growth rate. However, this growth was accompanied by a decline in prices. From January to December, China's exports of eight major dyeing products to ASEAN totaled 7.908 billion meters, a year-on-year increase of 12.14%, 4.61 percentage points higher than the overall export growth rate, accounting for 23.58% of total exports. The average export price was US\$1.19 per meter, a year-on-year decrease of 2.75%, 0.64 percentage points lower than the overall decline. Exports to RCEP member countries totaled 8.431 billion meters, a year-on-year increase of 11.35%, 3.82 percentage points higher than the overall export growth rate. The average export price was US\$1.17 per meter, a year-on-year decrease of 2.79%, 0.60 percentage points lower than the overall decline.
On February 28, Mr. Huang Hongyu, President of our company, was invited to attend the 2025 Zhangjiagang Cotton Industry Development Conference and, as a guest speaker at the "Xiangshan Roundtable," shared his views on the cotton market and trading opportunities.
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