Core view
The strongest variable for steady growth in 2022 is manufacturing investment, and the indicative role of PMI as a leading indicator should be highly valued. We believe that PMI has a large amount of information and strong timeliness, and reflects the month on month changes in manufacturing procurement, production and price in the next month. We suggest that under the stable growth of new manufacturing, PMI can be used to observe the marginal change of manufacturing investment, especially after moving average smoothing, it can better fit the manufacturing investment. At the same time, we believe that the important support of current manufacturing investment is two non directly observable policy variables: strong chain supplement and industrial base reengineering manufacturing, which is also difficult to measure quantitatively. PMI can partially map the strength of manufacturing investment driven by supply shortage and structural transformation from the perspective of supply side. We expect the growth rate of manufacturing investment to reach about 11.1% in 2022.
The biggest expectation difference of steady growth in 2022 lies in manufacturing investment
In 2022, under the background of triple pressure on China's economy and strong demand for steady growth, manufacturing investment is expected to become the core variable of steady growth exceeding infrastructure and real estate. Strengthening the chain and supplementing the chain should solve the problem of supply shortage in China in the middle and upper reaches of the manufacturing industry, and the industrial policy will drive the investment in technological transformation to maintain a high growth rate. At the same time, the focus of the industrial infrastructure reconstruction project is to transform the manufacturing industry into a new energy and intelligent structure, and drive the capital expenditure of plant, machinery, equipment and so on. The structural transformation of macro-economy and the industrial policy insist on establishing first and then breaking down. We believe that from 2022, the manufacturing industry will change from a driving variable along the economic growth to a driving variable of economic growth, while the real estate will only play a stabilizing role in the economic bottom. In our report "why can't we look at traditional meso variables for steady growth", we pointed out that the market often tracks traditional meso variables (such as rebar, cement, excavator, etc.) to observe steady growth, and these variables have strong correlation with real estate and infrastructure. When the carrier of steady growth changes, we should pay more attention to variables with stronger correlation with manufacturing investment.
Strengthening the chain, supplementing the chain and rebuilding the industrial foundation are the main lines of manufacturing investment, and PMI plays a great role in indicating
In the past, the paradigm of mainly using the profits of industrial enterprises to study and judge manufacturing investment is not fully applicable. The driving force of manufacturing investment has shifted from profit driven to policy driven. Therefore, we need to pay attention to the increment of manufacturing investment driven by policy. We believe that manufacturing investment needs to track the investment behavior of enterprises to enhance the independent control of the supply chain and make up for the short board in the middle and upper reaches, so as to realize the transformation of new energy and intelligence. Especially from the perspective of short-term analysis, PMI plays a greater role in indicating manufacturing investment under the stable growth of new manufacturing.
China Mining Manufacturing PMI index has good indicative significance for manufacturing investment. The manufacturing PMI survey involves 31 industry categories of manufacturing industry, with more than 3000 sample enterprises, mainly large and medium-sized enterprises, and small enterprises account for a relatively low proportion. CMI PMI survey has official endorsement, complete samples and high data quality, which can well track the manufacturing landscape.
Specifically, manufacturing PMI is a comprehensive index, which is composed of five sub indexes: production, new orders, raw material inventory, employees and supplier delivery time. On the whole, PMI represents the activity of manufacturing industry and the prosperity of all links of the industrial chain, and can better replace the impact of unobservable policy variables on investment. We suggest that PMI is of great significance under the stable growth chain of new manufacturing, and the policy effects of strengthening the chain, supplementing the chain and rebuilding the industrial foundation are also more contained in the changes of PMI and its sub index, which are embodied in multiple dimensions such as production, order, raw material procurement and so on.
Under the steady growth of new manufacturing, PMI is more closely related to manufacturing investment, which provides an important reference for short-term analysis
Generally, once the PMI is in the state of continuous expansion, it means that the prosperity of manufacturing enterprises is high, which will boost the willingness of capital expenditure. As sampling statistics, the PMI index is calculated with reference to the report data from the 22nd to 25th of each month. In fact, it shows the relationship between specific production and market demand in these four days. As the PMI index is month on month data, which is greatly affected by seasonal factors and base effect, the PMI value at a single time point is not of great significance. Therefore, the corresponding smoothing of PMI can eliminate the disturbance of irrelevant factors. It is suggested to pay attention to the moving average of PMI in the last three months.
According to the calculation of historical data, there is a high correlation between PMI index and manufacturing investment. The correlation coefficient between the 12-month moving average of PMI index and the year-on-year of manufacturing investment in the current month is as high as 0.65. For typical cases, from the end of 2017 to 2018, PMI continued to be in the range of high scenic spots. At that time, technological transformation investment driven manufacturing investment continued to be strong, significantly exceeding market expectations.
We tend to think that the reason why PMI can be used to analyze, study and judge manufacturing investment mainly provides a certain reference value in price and physical quantity. From the perspective of price dimension, the purchase price index of main raw materials of PMI and the ex factory price index of PMI have strong correlation with PPI, and also reflect the changes of manufacturing investment price index at the same time. In terms of physical quantity, PMI's new export orders and import indexes correspond to manufacturing reinvestment driven by external demand and manufacturing parts procurement investment respectively.
Mechanism 1: the PMI price index is an important guide for the prices of raw materials and finished products in the manufacturing industry
The PMI survey sample is complete and covers 31 major manufacturing industries. Compared with the traditional method of tracking the high-frequency changes of several upstream prices (such as crude oil, coal, steel, etc.) to judge PPI, the PMI price index can better guide the changes of raw material prices and finished product prices in the manufacturing industry. Among them, the purchase price index of PMI main raw materials is highly correlated with the month on month of ppirm, and the ex factory price index of PMI is highly correlated with the month on month of PPI. The correlation coefficient between the two is more than 0.9, and the synchronization is strong. For example, in May 2020, the prices of crude oil, steel and nonferrous metals rebounded sharply, but the prices of upstream raw materials have not been transmitted to the middle and upper reaches, the PMI ex factory price index is still in the contraction range, and the PPI finally increased negatively month on month.
Mechanism 2: PMI's new export orders point to the investment rhythm of manufacturing capacity expansion
The PMI new export order index represents the order quantity of products used for export in China this month. In theory, PMI's new export orders are the leading indicators of export, because after signing orders with foreign enterprises, they need to be delivered over a period of time, which will be reflected in the export data. Considering that PMI is essentially a month on month concept, but whether it is the month on month comparison of export delivery value or the month on month comparison of export, PMI's new export order index does not have a strong leadership over them. Therefore, we use the 12-month moving average PMI new export order index, which has a certain lead in export growth. According to our calculation, the correlation coefficient between PMI new export orders (moving average in the last 12 months) and the cumulative year-on-year growth rate of exports is 0.67, and the correlation coefficient between PMI new export orders (moving average in the last 12 months) and the year-on-year growth rate of exports in the current month is 0.50. We emphasize that the PMI new export order index is the leading index of export as a whole, and the export itself is highly synchronized with the investment in manufacturing industry. Therefore, PMI new export orders can better analyze and judge the capacity expansion of export-oriented manufacturing industry.
Mechanism 3: China's investment demand supports imports, and the PMI import index shows China's manufacturing investment demand
PMI import index represents the import volume of China's main raw materials (including parts). Throughout history, PMI import index is synchronized with PMI new order index, which is one of the indicators of domestic demand. From the basic logic point of view, when the production is booming, the enterprise will increase the intensity of procurement, and can also meet the production demand of the enterprise through import, so as to stimulate the investment demand of the manufacturing industry. On the contrary, when production is weak, enterprises will focus on destocking, so as to reduce procurement and weaken investment demand. According to our calculation, the correlation coefficient between PMI import index (moving average in the last 12 months) and the cumulative year-on-year growth rate of imports is 0.75, and the correlation coefficient between PMI import index (moving average in the last 12 months) and the year-on-year growth rate of imports in the current month is 0.69. We suggest that import itself depends on domestic demand, especially under the catalysis of strong chain replenishment and industrial base reconstruction, the relevant investment in manufacturing industry to make up for weaknesses accounts for a relatively high proportion. Therefore, PMI import index can better predict the capital expenditure of manufacturing industry.
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