Industry differentiation intensifies, the machinery industry may progress steadily.

In the first half of this year, the economic operation of the machinery industry showed a stabilizing trend, with overall operating indicators better than those of the industrial sector and also better than the same period last year. From January to May, the national industrial added value increased by 5.9%, manufacturing grew by 6.7%, and the added value growth of the machinery industry was 7.6%, which was 1.7 and 0.9 percentage points higher than the industrial and manufacturing sectors, respectively. It was also 2.1 percentage points higher than the same period last year (5.5%). The growth rate of added value has returned to above the national industrial average after being below it last year. From January to April, the machinery industry achieved main business income of 71,649.99 billion yuan, a year-on-year increase of 5.63%. Cai Weici, a special advisor to the China Machinery Industry Federation, summarized the economic operation trend in the first half of the year as: downward stabilization with a slight rebound; the automotive and electrical industries contributed the most; differentiation intensified, with private enterprises performing better. In response to the industry's "U-shaped" and "L-shaped" judgments, Cai Weici assessed that the current bottom of the "L-shaped" trend is basically visible and will continue. Looking at the whole year, the industry may undergo low-level consolidation, and through transformation and upgrading, it will progress steadily. The China Machinery Federation believes that currently, due to relevant industries completing tasks of capacity reduction, destocking, and deleveraging, the impact on the machinery industry is significant, with weak industry demand and intensified differentiation, and the stabilizing trend still needs to be solidified. A. Data One Main economic indicators are better than the same period last year, and the growth trend of major product output has improved. Industrial added value: From January to May, the national industrial added value increased by 5.9%, manufacturing grew by 6.7%, and the machinery industry added value growth rate was 7.6%, which was 1.7 and 0.9 percentage points higher than the industrial and manufacturing sectors, respectively. It was also 2.1 percentage points higher than the same period last year (5.5%). The growth rate of added value has returned to above the national industrial average after being below it last year. Main business income: From January to April, the machinery industry achieved main business income of 71,649.99 billion yuan, a year-on-year increase of 5.63%, which is 3.35 percentage points higher than the national industrial average (2.28%); it is also 1.73 percentage points higher than the machinery industry growth rate of the same period last year (3.9%). Total profit achieved: From January to April, the machinery industry achieved a total profit of 4,643.28 billion yuan, a year-on-year increase of 6.36%, slightly lower than the national industrial average (6.52%) by 0.16 percentage points; it is 5.53 percentage points higher than the machinery industry growth rate of the same period last year (0.83%). From the trend, the cumulative growth rate of the machinery industry added value has increased month by month. The added value growth rate from January to March increased by 0.7 percentage points compared to January to February; from January to April, it increased by 0.2 percentage points compared to January to March. From January to May, it increased by 0.3 percentage points compared to January to April. The growth trend of major product output has slightly improved. Among the 119 major products monitored in the machinery industry, half of the major product varieties decreased from January to April, while from January to May, more than half of the varieties showed year-on-year growth. From January to May, 61 product varieties showed year-on-year growth, accounting for 51.26%, while 58 product varieties showed a year-on-year decline, accounting for 48.74%. Only 16 products showed double-digit growth. The number of product varieties showing year-on-year growth has been increasing month by month, but there are significant differences between products, continuing to show a trend of differentiation. Major economic efficiency indicators have slightly improved year-on-year. From January to April, the machinery industry's capital preservation and appreciation rate was 110.27%, which is 3.42 percentage points higher than the national industrial average (106.85%); the asset-liability ratio is at a reasonable level of 54.49%, which is 2.31 percentage points lower than the national industrial average (56.8%); the turnover rate of current assets is 1.88 times, a year-on-year decrease of 0.02 times, but an increase of 0.02 times compared to January to March (1.86 times); the cost-profit ratio is 6.95%, a year-on-year increase of 0.06 percentage points; the profit margin is 6.48%, a year-on-year increase of 0.04 percentage points. The increase in management expenses is lower than the same period last year, while sales and financial expenses have significantly increased. From January to April, the machinery industry's management expenses increased by 6.23% year-on-year, lower than the same period last year (7.3%) by 1.07 percentage points; sales expenses increased by 4.72% year-on-year, higher than the same period last year (3.33%) by 1.39 percentage points; financial expenses increased by 8.35% year-on-year, significantly higher than the same period last year (-6.02) by 14.37 percentage points, with interest expenses decreasing by 4.65% year-on-year. B. Data Two Machinery industry investment growth rate declines, key contact enterprises face insufficient orders. Inventory and finished products slightly increased, while accounts receivable grew relatively quickly. From January to April, the machinery industry inventory was 24,138.47 billion yuan, a year-on-year increase of 0.17%, lower than last year's (7.3%) level, of which finished products were 9,278.63 billion yuan, a year-on-year increase of 1%, lower than last year's (10.28%) level. Accounts receivable were 37,179.08 billion yuan, a year-on-year increase of 10.69%, higher than the national industrial average (8.48%) and also higher than the same period last year (6.1%). Accounts receivable accounted for 32.48% of total current assets, an increase of 1.09 percentage points compared to the same period last year (31.39%). From the cumulative growth rate of each month, there has been an increase compared to the same period last year. This year, the cumulative order amount of key contact enterprises in the machinery industry has escaped the trend of year-on-year decline, with a year-on-year increase of 4.43% from January to March, recovering 13.67 percentage points compared to the same period last year (-9.24%). From January to April, the cumulative order increased by 3.65% year-on-year, a decrease of 0.78 percentage points compared to January to March, indicating an unstable order situation. Although the issue of insufficient orders has improved, the problem of underutilization of capacity compared to the peak production years remains prominent. The investment growth rate of the machinery industry is declining. According to the National Bureau of Statistics, from January to May, the total fixed asset investment in society increased by 9.6%, while machinery industry investment grew by 6.31%, which is 3.29 percentage points lower than the overall investment growth rate, but 1.71 percentage points higher than manufacturing (4.6%). In May, the investment completed was 4,432.06 billion yuan, a year-on-year decrease of 1.62%, a drop of 10.55 percentage points compared to the same period last year (8.93%). In the first three months of 2016, the investment growth rate was higher than the same period last year, with a year-on-year increase of 6.31% from January to May, lower than January to April and also lower than the same period last year (9.23%) by 2.92 percentage points. Among the 13 major industries in the machinery industry, the electrical and electronic industry grew by 11.98% year-on-year, automotive by 12.42%, machinery basic components by 10.81%, cultural and office equipment by 23.39%, food packaging machinery by 14.58%, and construction machinery by 8.41%, all of which were higher than the industry average. The agricultural machinery, internal combustion engine, heavy machinery, and machine tool industries experienced year-on-year declines. The instrument and meter, petrochemical general, and other civil machinery industries saw slight increases of around 1%. From January to May, small industries with a year-on-year investment growth rate decline of over 30% include: manufacturing of special equipment for agricultural and sideline food processing, manufacturing of special equipment for feed production, manufacturing of fishing machinery, manufacturing of cotton processing machinery, manufacturing of special instruments and meters for agriculture, forestry, animal husbandry, and fishery, manufacturing of other instruments and meters, manufacturing of special equipment for marine engineering, manufacturing of special equipment for rubber processing, manufacturing of turbines and auxiliary machines, and manufacturing of water turbines and auxiliary machines, all showing declines exceeding 30%. The foreign trade import and export of the machinery industry remains pessimistic. From January to April, the total import and export volume of the machinery industry accounted for about 18% of the national total. In the first four months of 2016, the total import and export volume of the machinery industry was 198.497 billion USD, a year-on-year decrease of 8.95%, with imports at 81.812 billion USD, a year-on-year decrease of 10.6%, and exports at 116.685 billion USD, a year-on-year decrease of 7.75%. It is worth noting that private enterprises, which account for 40% of the industry's exports, have historically seen double-digit growth in exports, but since last year, this has begun to decline month by month. In the first four months of this year, both imports and exports showed negative growth, especially exports, which changed from a year-on-year increase of 8.8% last year to a year-on-year decrease of 1.03% in the first four months of this year; the export provinces of Jiangsu, Zhejiang, and Guangdong saw year-on-year declines of 5.46%, 5.5%, and 5.84%, respectively, indicating significant pressure on machinery industry exports. C. Operational Characteristics The development of the industry is uneven, and differentiation among industries is intensifying. From the operational characteristics of the first half of the year, differentiation continues to intensify both between and within industries. In the first half of this year, among the 13 major industries, the electrical and electronic industry grew by 11.98% year-on-year, automotive by 12.42%, machinery basic components by 10.81%, cultural and office equipment by 23.39%, food packaging machinery by 14.58%, and construction machinery by 8.41%, all of which were higher than the industry average. In particular, the electrical and automotive sectors have played a significant role in driving industry development. The agricultural machinery, internal combustion engine, heavy machinery, and machine tool industries experienced year-on-year declines, while the instrument and meter, petrochemical general, and other civil machinery industries saw slight increases of around 1%. From the perspective of specific industry development, the economic operation of the electrical industry in the first half of 2016 showed characteristics of overall slow growth, profit growth exceeding revenue growth but beginning to decline, and production showing mixed increases and decreases, with a severe foreign trade situation. According to the electrical association, from January to May, the investment in power construction was 90.3 billion yuan, a decrease of 8 billion yuan compared to the same period last year. The investment in grid construction was 163.8 billion yuan, although it increased by 46.1 billion yuan compared to the same period last year, the investment in grid construction will still show an accelerating trend in recent years due to adjustments in the structure of national power construction investment. The average utilization hours of power generation equipment nationwide were 1,484 hours, a decrease of 117 hours compared to the same period last year. In terms of import and export, the depreciation of the renminbi may promote exports to a certain extent, but due to insufficient external demand in the international market, the export situation is not optimistic. In terms of fixed asset investment, the year-on-year growth rate of the electrical industry is still around 10%, which is basically consistent with the overall investment growth rate of the machinery industry, and this trend may continue in 2016. To accelerate industry development, the electrical association suggests speeding up the implementation of the "Made in China 2025" high-end equipment innovation project and promoting deep integration of the two industries in key sectors, especially implementing the "going out" strategy and strengthening international capacity cooperation. The association's relevant person in charge told reporters that the electrical industry has already set an example in implementing the "going out" strategy and promoting international capacity cooperation, with leading enterprises in power generation and transmission and transformation taking the lead and achieving certain results. Therefore, it is hoped that all advantageous enterprises in the industry that meet certain conditions will actively expand international cooperation areas, increase market space, and improve internationalization levels. From the perspective of the petrochemical industry, in the first half of this year, China's petroleum and petrochemical equipment manufacturing industry is still deeply affected by the long-term sluggishness of both domestic and international markets, with economic operations continuing the development trend of the previous year, and stabilization and recovery remain weak. From January to April, the economic operation indicators of the industry were generally lower than those of the entire machinery industry, characterized by a significant year-on-year decrease in the output of major products (oil drilling equipment), negative year-on-year growth in export delivery value and total profit, and a downward trend, with the year-on-year growth rate of main business income being comparable to that of 2015. A relevant person in charge of the petrochemical industry association stated that the overall economic operation is currently showing an "L-shaped" trend, with the bottom fluctuating around zero, and it is very difficult to break through zero and stabilize and recover, making the situation not optimistic. From the perspective of the machine tool industry, the development data for the first three months of this year show that the demand in the Chinese machine tool market has shown signs of temporary recovery, and the downward trend of the industry operation has slowed. The main economic indicators of the industry have adjusted, but overall, it is still under pressure and operating at a low level. The main business income of the entire industry decreased by 6.2% year-on-year. The main business income of metal processing machine tools decreased by 7.9% year-on-year. Among them, the main business income of metal cutting machine tools decreased by 7.8% year-on-year; the main business income of metal forming machine tools decreased by 8.6% year-on-year. The main business income of tools and measuring tools decreased by 13.1% year-on-year. The output of metal processing machine tools decreased by 19.2% year-on-year. Among them, the output of cutting machine tools decreased by 18.3% year-on-year, and the output of metal forming machine tools decreased by 24.2% year-on-year. The export of machine tool products continues to show a year-on-year decline, and the decline has increased compared to the previous month. The export value was 2.34 billion USD, a year-on-year decrease of 12%. Among them, the export value of metal processing machine tools was 670 million USD, a year-on-year decrease of 16.9%; the export value of metal cutting machine tools was 440 million USD, a year-on-year decrease of 17.8%; the export value of metal forming machine tools was 230 million USD, a year-on-year decrease of 14.9%. The export value of cutting tools was 530 million USD, a year-on-year decrease of 7%; and abrasives and grinding tools were 480 million USD, a year-on-year decrease of 6.8%. The overall import of machine tool products shows a downward trend, but the decline has narrowed compared to the end of last year, with a significant rebound in imports in March. From January to March, the total import and export value was 5.53 billion USD, a year-on-year decrease of 12.4%; the import value was 3.19 billion USD, a year-on-year decrease of 12.5%; and the trade deficit was 850 million USD, a year-on-year decrease of 14.1%. D. Market Conditions In May, the manufacturing purchasing managers' index was 50.1%. According to data from the National Bureau of Statistics, in May 2016, China's manufacturing purchasing managers' index (PMI) was 50.1%, unchanged from the previous month, remaining in the expansion range for three consecutive months. By enterprise size, the PMI for large enterprises was 50.3%, a decrease of 0.7 percentage points from the previous month, but still above the critical point; the PMI for medium-sized enterprises was 50.5%, an increase of 0.5 percentage points from the previous month, returning to the expansion range; the PMI for small enterprises was 48.6%, an increase of 1.7 percentage points from the previous month, although still below the critical point, the contraction has narrowed. From the classification index, among the five classification indices that make up the manufacturing PMI, the production index, new orders index, and supplier delivery time index were above the critical point, while the employment index and raw material inventory index were below the critical point. The production index was 52.3%, a slight increase of 0.1 percentage points from the previous month, remaining above the critical point, indicating that manufacturing production continues to grow steadily. The new orders index was 50.7%, although it decreased by 0.3 percentage points from the previous month, it has remained above the critical point for three consecutive months, indicating that manufacturing market demand continues to expand, but the growth rate is slowing. The employment index was 48.2%, an increase of 0.4 percentage points from the previous month, remaining below the critical point, indicating that manufacturing enterprises have reduced their workforce, but the decline has narrowed. The raw material inventory index was 47.6%, a slight increase of 0.2 percentage points from the previous month, remaining below the critical point, indicating that the inventory of major raw materials in manufacturing continues to decrease. The supplier delivery time index was 50.4%, an increase of 0.3 percentage points from the previous month, indicating that the delivery time of raw material suppliers in manufacturing has accelerated compared to the previous month. E. Suggestion One Strategically plan the "13th Five-Year Plan" and effectively tackle the challenges of transformation and upgrading. Wang Ruixiang, president of the China Machinery Industry Federation, recently stated that this year marks the beginning of the "13th Five-Year Plan" and is a crucial stage for China to build a moderately prosperous society.

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