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China’s Ministry of Commerce Admitted Manufacturers Are Moving Out of China

Well-known Chinese news site Sohu recently reported that multiple senior leadership team members of the Chinese Ministry of Commerce jointly held a press conference on July 2. The Ministry admitted that industrial players and even supply chains are moving out of China. However, they suggested that it is normal for companies to move in and out as their globalization priorities change. It is understandable that places with lower costs may attract some companies to move out of China. One cannot simply conclude that this is a direct result of the China-US trade friction, since there are many causes. In the press conference, the Ministry also mentioned that its focal points for work this year are to “stabilize foreign trade” and to “stabilize foreign investments.” The Ministry is currently “cleaning up” existing regulations in preparation for the new Foreign Investment Law to take effect next January.

Source: Sohu, July 2, 2019

China’s June Manufacturing PMI Numbers Showed Declines

Well-known Chinese news site Sina recently reported that the just-released Caixin Chinese Manufacturing PMI June number reached 49.4, which indicated a decline in the manufacturing sector. This number is in line with the Manufacturing PMI index that China’s National Bureau of Statistics released a couple of days earlier. It was also 49.4. It is unusual for these two independent indicators to be exactly the same. In June, China’s total manufacturing industrial output suffered a decline. Employment in manufacturing continued to shrink. Many manufacturers did not hire people to fill the vacancies freed up by workers who left their job. The new order level continued to see a decline. Product inventory level decreased due to the production slowdown and the companies have been filling orders with inventory. Manufacturers are reducing the purchasing volume for raw materials. In June, the average cost reached a seven-month high and the product price saw a slight increase as well. PMI (Purchasing Managers Index) is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.

Source: Sina, July 1, 2019

Xinhua: China’s Micro Leverage Ratio Hit New High

Xinhua reported that, by the end of the first quarter of this year, China’s Micro Leverage Ratio increased by 5.1 percent over last year, reaching 248.8 percent. The record that this set establishes a new high. The Micro Leverage Ratio is defined as the total government debt over the GDP.

This reason for the new high ratio is the slowdown of the increase in fiscal income. On the one hand, the fiscal income increase ratio went down to 2.9 percent in April, the lowest since 2016. On the other hand, government spending is increasing at a faster rate. The actual deficit ratio, defined as (general public fiscal spending minus general public fiscal income), when divided by GDP, has increased to 4.5 percent, the highest in the past ten years.

Therefore, local governments have resorted to issuing bonds to raise money thus hiking up the debt ratio.

Source: Xinhua, June 14, 2019

China’s Movie Market Saw First Box Office Decline in Nine Years

The China Business Journal recently reported from the Shanghai International Film Festival that statistics showed that the Chinese movie market saw a box office year-over-year decline of 6.35 percent in the first five months of this year. During this period, the national total viewership also declined from 689 million people to around 589 million. This is the first time since 2011 for the Chinese movie market to suffer a decline in box office revenue. One of the reasons for this dramatic decline was that, in 2018, the entertainment industry was hit with tax related scandals. Domestic movie makers were affected when the stock they held lost 72 percent of its value in the stock market. Another major issue is that half of the movies in the Chinese market were from the United States. The current poor relationship between China and the U.S. led to a government intervention which affected U.S. movie distribution in China. Even domestic movies were limited in choosing themes and stories.

Source: China Business Journal, June 16, 2019

Lianhe Zaobao: China’s Industrial Output Growth Rate In May Reached 17-Year Low

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that, according to data that the National Bureau of Statistics of China just released, in May, China’s industrial output saw a five percent year-over-year growth. However, this rate is the lowest it has been in 17 years, since February 2002. Apparently, this is a direct result of the trade war between China and the United States. Analysts expressed their belief that the cause of the lower growth was a massive stimulus package, which includes tax cuts, more debt, and government spending. The growth rate was lower than expected. The same data report from the Bureau of Statistics also indicated that, in May, government revenue suffered a negative growth. Experts expect the Chinese government to make more infrastructure investments in the near future.

Source: Lianhe Zaobao, June 15, 2019

Epoch Times: Mainland Auto Inventory Exceeds Warning Line for 17 Consecutive Months

According to the Epoch Times, the latest issue of the “China Automobile Dealer Inventory Alert Survey” shows that the mainland’s automobile inventory index in May is above the inventory warning line. The car inventory has exceeded the inventory warning line for 17 consecutive months.

The China Automobile Dealers Association (China Automobile Association) recently released the latest issue of the “China Automobile Dealer Inventory Alert Survey.” The survey showed that the automobile dealer inventory warning index was 54.0 percent in May, down 7 percent from the previous month and up 0.3 from the same period last year. Since 2018, mainland car sales have declined for 10 consecutive months, and dealers’ revenue targets have fallen sharply. The high inventory has become a major concern.

According to Changjiang Business Daily news, the “Report on the current living conditions of China’s auto dealers and related report recommendations” that the China Automobile Association issued show that the current inventory in the industry is more than 3 million units, the equivalent to two months of sales. The cost of carrying a high inventory has eroded the gross profit on the new cars. In addition, the implementation of emission standards for phase VI also increased the dealers’ pressure to clear the inventory of cars made using the emission standard of phase V.

According to the survey of the Automobile Association, in June, the automobile market is about to enter the off-season. Therefore, the market demand in June is expected to decline compared with that in May. The automobile market will continue to be sluggish and the pressure on dealers will further increase.

The article quoted comments stating that the decline in automobile sales shows that the economic environment is also slowing down. For the mainland, the causes are the economic downturn and the expected decrease in personal income. In addition, the sharp rise in the price of necessities, such as pork and fruits and vegetables, has caused the people’s monthly living expenses to rise. When people revise their spending plans, they have to delay or eliminate spending on big expenditures such as tourism and car purchases.

Source: Epoch Times, June 9, 2019