"One-man win" sign of change in Chinese economy?

The reason for the scream from SMEs is August 2, 18:07

“The more we produce, the bigger the deficit ...”

Chinese SMEs hear screaming grief.

The Chinese economy quickly recovered from the impact of the new coronavirus last year.

Authorities still emphasize that "a stable recovery is continuing," but last month it surprised market participants with additional monetary easing to support the economy.

What is happening now in the Chinese economy, which has even been said to be "one-man win"?

(Ryoto Iga, Reporter, Directorate General of China / Hiroshi Takashima, Reporter, Guangzhou Bureau)

Inflated demand in the corona

"Last year was extraordinarily good,"

said Mukaibunnami, president of Sanichi Group, a major construction machinery manufacturer based in Changsha, Hunan Province, inland.

It is also known that this manufacturer provided a special vehicle used for water discharge during the Fukushima Daiichi nuclear accident.

Last year's sales were about 2.3 trillion yen, an increase of more than 30% from the previous year, symbolizing the strong Chinese economy.

The number of excavator cars sold has exceeded 90,000, and I am proud to say that it has become the number one in the world.

The tailwind was the government's economic measures.

Earlier last year, the Chinese government embarked on a major fiscal mobilization as the spread of the new coronavirus affected the economy.

Of this amount, the issuance limit of bonds used by local governments for infrastructure investment was RMB3.75 trillion (more than 63 trillion yen), 1.7 times that of the previous year.

As a result, infrastructure investment has increased and construction machinery has sold more than ever.

"The spread of the infection has had a positive effect on our performance as a result," said Mr. Mukai.

Did you cross the peak?

However, as I proceeded with the interview, I found that changes were occurring.

The manufacturer attaches sensors to all 680,000 machines shipped domestically to analyze operating conditions in real time.

This is to use it for repairs in the event of a failure, or to predict demand and lead to efficient production.

The average 24-hour occupancy rate analyzed based on this data reached a record high last year.

The occupancy rate is about 10 points lower than at its peak.

Manufacturers believe that infrastructure demand across China has peaked.

In fact, the growth rate of infrastructure investment has decreased since then.

In the background, there is a reduction in fiscal stimulus aimed at returning from the emergency response of the Corona disaster to the policy of peacetime, and it is believed that the Chinese government is trying to shift from government-led recovery to private-sector-led growth. ..

Questions that emerged

However, on the 9th of last month, government-led economic measures were announced again.

The central bank, the People's Bank of China, has announced additional monetary easing measures to support the financing of small and medium-sized enterprises.

It was taken as a surprise in the market, which is dominated by the view that the Chinese economy continues to recover steadily.

The People's Bank of China has decided to supply 17 trillion yen in Japanese yen by reducing the ratio of funds forcibly deposited from financial institutions.

Surprise was the speed of the decision and its target.

Two days before the People's Bank of China's announcement, the Chinese government had indicated that it would consider additional monetary easing, but did not say when.

For this reason, there was a view in the market that implementation would be a while away and that the measures would be limited.

However, when I opened the lid, it was immediately implemented and targeted a wide range of financial institutions.

"Isn't China's economy not as good as it seems?"

Even such questions have surfaced among market players.

Challenges facing "factory of the world"

Why is it now necessary to support the financing of SMEs?

We interviewed a home appliance maker, Letu Electrical Appliance, in Zhongshan, Guangdong Province, which has been called the "factory of the world."

A company with more than 100 employees who manufactures electric fans for North America on a contract basis faced a major challenge.

Raw material prices are soaring due to the resumption of economic activities around the world.

Chairman Reimeiyo complained, "There are no raw materials that have not risen in price. Even the paper used for packaging is becoming more expensive."

Chairman Rei continues to record raw material prices.

If you show me the price for June, the price of the copper wire used for the motor that turns the fan of the electric fan is about 13,000 yuan (about 220,000 yen) per ton compared to August last year. The price has increased by 47%.

In addition, the price of iron increased by 32% and that of aluminum increased by 17%.

As a result, the manufacturing cost of electric fans has risen by more than 20%.

Although orders have increased, it is in the red ...

What is worrisome to Chairman Rei is that the increase in costs cannot be passed on to prices.

This is because the contract for one-year contract production was signed with the consignee in August last year, and the order price has already been decided.

Chairman Rei

"The more we produce, the more the deficit grows. It's the first time that it's profitable to take a break from the factory."

Due to the so-called rising demand for nesting, the number of orders received this year is 1.8 million units, which is 1.5 times that of the previous year, but it is expected to be in the red by nearly 200 million yen.

We are discussing with our business partners for a contract for contract production next year, but if we raise the order price, there is a risk that we will be contracted by a rival company, so we are faced with a difficult decision.

Chairman Rei

"It may be difficult to secure profits next year because we do not know how long the soaring raw material prices will continue. If we do not take measures such as reducing labor costs, the company will go bankrupt."

Will the deceleration increase in the second half of this year?

Under these circumstances, on the 15th of last month, China announced GDP = gross domestic product from April to June.

The growth rate compared to the same period of the previous year was + 7.9%.

Compared to the previous three months, which was the highest level ever, partly due to the negative reaction to the corona disaster, the growth rate was within the expected range.

However, it was widely accepted that the growth was slowing down because it was lower than the 8% level, which was the center of the market forecast in advance.

Naoto Saito, senior researcher at Daiwa Institute of Research, sees the future of the Chinese economy as follows.

Saito, Senior Researcher

"The economy itself is not bad from the content of GDP, but it is a delicate level that is lower than the market expectation. It is because the authorities have sensed signs of modulation due to soaring raw material prices, etc. Not only the soaring raw material prices, but also the “corona special demand” of exports due to the increase in global nesting consumption will be settled in the future, and the impact of the global shortage of semiconductors, etc. So, in the second half of this year, the risk of a downturn in the economy will increase. "

Experts have also pointed out that the Chinese government may have to take steps such as further monetary easing and additional fiscal stimulus.

On the other hand, there are growing concerns about side effects such as real estate bubbles and debt expansion due to large-scale economic measures in the Corona disaster.

The Chinese economy is under pressure to steer difficultly by looking for an exit and not letting the economy cool down.

As many Japanese companies have increased their profits in the Chinese business while the world economy has been hit, it seems necessary to pay attention to “modulation”.

China General Administration of reporters

Iga Akirahito

2006. He joined

the Sendai station Okinawa stations

through the economic part

the current affiliation from last year

Guangzhou Bureau Reporter

Hiroshi Takashima

Joined in 2012

After working in the Political Department of the

International Department of the Niigata Bureau

, he is

currently affiliated from last year.