Machinery / Industrial Parts & Tools

The Politburo of the CPC Central Committee held a second quarter meeting on July 30 to analyze and study the current economic situation and economic work, and set the focus of the next step.

The 730 Politburo meeting’s judgment on the economic situation changed from optimism to cautiousness: in the first half of the year, “the economy continued to recover steadily and stabilized and improved”; however, “the current global epidemic is still evolving, the external environment is becoming more complex and severe, and the domestic economy is still not recovering. Stable and unbalanced".

In the past three consecutive months, leading indicators such as manufacturing PMI, new orders, new export orders, and real estate sales have declined. The PMI index of small and medium-sized enterprises has been under the line of prosperity for a long time, facing upstream cost squeeze and weakening of downstream demand, and downward pressure on the economy has increased. . The focus of future policy is to stabilize growth, stabilize employment, control inflation and promote reforms.

Investment declined, real estate investment continued to slow down, and investment in infrastructure and manufacturing rebounded slightly but remained sluggish. Investment in fixed assets from January to June was 5.8% year-on-year, a decrease of 0.2 percentage points from January to May. Among them, real estate investment from January to June was 10.9% year-on-year, down 0.3 percentage points from January to May, and fell for two consecutive months; infrastructure investment from January to June was 4.1% year-on-year, up 0.1 percentage point from January to May; 1- Manufacturing investment in June was 3.0% year-on-year, up 0.3 percentage points from January-May.

Since the beginning of this year, the global economy, especially the economies of the United States and Europe, has continued to recover. However, the recent "delta" variant strain has once again triggered the spread and rebound of the global epidemic, bringing uncertainties in the recovery of the global economy. The number of newly diagnosed cases in Europe and the United States has risen daily, and countries with high vaccination rates, such as the United Kingdom and the United States, have rebounded. As of July 29, there were more than 670,000 new cases in the world every day, including 97,000 cases in the United States and 30,000 cases in the United Kingdom. Russia, France, India, Brazil, etc. are all more serious. The resumption of wearing masks indoors in some parts of the United States and restrictions on economic activities will have a certain impact on the recovery of industry and service industries.

From the second half of 2021 to the first half of 2022, the main contradiction of China's economy is: downward pressure on the economy is increasing, real estate and exports are the main drag, consumption and manufacturing investment are difficult to hedge. The prices of bulk commodities are still high, and rising costs squeeze the mid- and downstream manufacturing and service industries, adding to the plight of small and medium-sized enterprises. The economic downturn and inflation coexist at a high level, and the characteristics of "stagflation" are obvious.

The recent RRR cuts and interest rate cuts and the issuance of special bonds to new infrastructure are mainly hedging. In the future, as the downward pressure on the economy increases and inflation falls, fiscal and monetary policies will become proactive and loose.

"Accelerate the implementation of major strategies and enhance the functions of urban agglomerations", the construction of urban agglomerations and metropolitan areas is expected to accelerate

The three major urban agglomerations in the Yangtze River Delta, Guangdong-Hong Kong-Macao, and Beijing-Tianjin-Hebei have all become national strategies, and the Chengdu-Chongqing urban agglomeration is expected to be positioned as the fourth growth pole. The construction of urban agglomerations is conducive to increasing the density and frequency of economically active population, increasing total factor productivity, and promoting high-quality economic development in China. Since 2013, the central government has required urban agglomerations to be the main form of promoting the country's new urbanization, and 19 urban agglomerations have been planned, but most of them are immature. At present, 19 urban agglomerations gather 75% of the population with 25% of the land, creating 88% of GDP, of which the urban population accounts for 78%. Among them, the three major urban agglomerations in the Yangtze River Delta, Guangdong-Hong Kong-Macao, and Beijing-Tianjin-Hebei have all become national strategies. The National Development and Reform Commission's "Key Tasks for New Urbanization Construction in 2019" requires that "to carry out the follow-up evaluation of the implementation of the Chengdu-Chongqing urban agglomeration development plan, study and propose policies and measures to support the high-quality development of the Chengdu-Chongqing urban agglomeration, and foster the formation of new important growth poles. "This is the first time that the Chengdu-Chongqing urban agglomeration has been separately emphasized in a central document, implying that it may be upgraded to a national strategy in the future and build China's fourth growth pole.

Cultivating modern metropolitan areas is a breakthrough and starting point for the construction of urban agglomerations. In February 2019, the National Development and Reform Commission issued the "Guiding Opinions on Cultivating and Developing Modern Metropolitan Areas", requiring the construction of a one-hour commuter circle in the direction of co-urbanization. This is my country's first central document with the theme of "metropolitan area". There are currently 10 metropolitan areas with more than 20 million people including Shanghai, Beijing, Guangzhou, Foshan, Hangzhou, Shenzhen, Dongguan and Hui, and 14 metropolitan areas with 10-20 million people including Chongqing, Qingdao, and Xia Zhangquan. The 24 tens of millions of metropolitan areas gather about 33% of the permanent population with 6.7% of the country's land, creating about 54% of GDP, and most of the metropolitan areas are in continuous inflow of population. As the core sector of urban agglomerations, the construction of my country's metropolitan area has shown a rapid development trend in recent years, but problems such as weak transportation connections, limited division of labor and cooperation, and serious low-level homogenization competition are prominent.

Macro policy: inter-cyclical adjustment, fiscal policy force, quality and efficiency improvement, infrastructure underpinning the economy

The Politburo meeting emphasized that “we must do a good job in the cross-cycle adjustment of macro policies, maintain the continuity, stability, and sustainability of macro policies, make overall plans for the convergence of macro policies this year and the next, and maintain economic operations within a reasonable range.”

The general tone of the fiscal policy is to "improve policy effectiveness and secure the bottom line of the "three guarantees" at the grassroots level." "A proactive fiscal policy must rationally grasp the progress of budgetary investment and local government bond issuance, and promote the formation of a physical workload at the end of this year and early next year."

From the end of this year to next year, fiscal policy has strengthened the role of infrastructure to stabilize growth.

In the first half of 2021, the central government's infrastructure investment strategy is to put quality first, and quality over quantity. As the need for countercyclical adjustments has fallen sharply, the central government has begun to cut unnecessary infrastructure expenditures, tightening requirements and supervision on the issuance of special bonds, and paying more attention to "structural adjustment."

Looking forward to the second half of the year, the issuance of special government bonds is expected to accelerate, and the economy will be supported by infrastructure, with both quality and quantity. The Politburo meeting reiterated "improving policy effectiveness" and required local governments to live a "tight life" and guard against the risks of the "three guarantees" while at the same time forming a physical workload to promote infrastructure investment to underpin economic growth. In terms of quality, it is expected that there will still be requirements for the quality of infrastructure projects, with the goal of optimizing infrastructure investment and promoting high-quality infrastructure construction. It is expected that the issuance of local bonds in the coming months will be accelerated in conjunction with the 14th Five-Year Plan.

2.6 trillion yuan of new special bonds are ready to be issued, the growth rate of infrastructure investment will accelerate in the second half of the year

According to public statistics, in the first half of this year, local governments issued new special bonds exceeding 1 trillion yuan, reaching about 102.9 billion yuan. Compared with the size of bonds issued in the same period last year (about 2.2 trillion yuan), this is a year-on-year decrease of about 55%.

Speeding up the issuance of special bonds in the second half of the year

Minister of Finance Liu Kun delivered the "Report on the Central Final Accounts for 2020" at the 29th meeting of the Standing Committee of the 13th National People's Congress on June 7. The report proposes that in 2021, 27 transfer payments will be included in the direct scope, and the total amount of funds will reach 2.8 trillion yuan, basically realizing the full coverage of the central government's livelihood subsidy funds, and hedging the impact of some phased policies. Make good use of local government special bonds, guide local governments to strengthen project reserves, appropriately relax the time limit for special bond issuance, reasonably control the pace of issuance, and improve the performance of bond fund use.

As the main source of local infrastructure funds for special bonds, the market generally expects that special bonds will accelerate the issuance of special bonds in the second half of the year and complete the annual 3.65 trillion yuan of new special bond issuance tasks, which means that there will be about 2.6 trillion yuan in the second half of the year. New special bonds are pending issuance.

It is estimated that in 2021, the special debt will drive about 2.75 trillion yuan to invest in infrastructure construction. Compared with the 2.02 trillion yuan under the 2020 baseline, the incremental funds will be 650 billion yuan. Under the condition that other sources of funds remain unchanged, the infrastructure construction in 2021 will be increased. The growth rate was 3.9 percentage points.

Given the low issuance in the first half of the year, the second half of the year may usher in a peak of debt issuance, which will stimulate demand for construction machinery and equipment, which is expected to support the steady growth of construction machinery and equipment in the second half of the year. In addition, the National IV emission standards to be implemented in December 2022 will accelerate the process of upgrading construction machinery. At the same time, under the promotion of national policies, the green, digital, and intelligent construction machinery will be the transformation direction of the industry, and industry technology will be further improved.