Industrial production has been greatly impacted by the epidemic. In April, the industrial added value fell more than expected, and the impact of the epidemic on industrial production appeared in an all-round way. However, compared with the downward trend of the consumer end, the decline of industrial production is still relatively small. Therefore, the impact of the epidemic on China’s economy is still a “deflationary impact”, which is consistent with the previous law. The law of the epidemic situation in overseas countries is that it has a relatively greater impact on production, which is an “inflationary impact”, and the two are structurally different. The industrial production data in April has the following structural characteristics: first, the shutdown caused by epidemic prevention and control is the main reason for the decline of industrial production. The industrial output value of the Yangtze River Delta alone accounted for about 1 / 4 of the country. The negative impact of the epidemic in Shanghai was the main factor impacting industrial production in April. Second, the upstream is hardly affected, and the middle and downstream are greatly impacted. The first reason is that the national supply guarantee policy continues to promote the production and supply of upstream raw materials; Second, the high price of industrial raw materials also increases the willingness of enterprises to increase production; Third, the mining industry is mainly located in the central and western regions and is less affected by this round of epidemic. The added value of manufacturing industry decreased by 4.6% year-on-year, reflecting the greater impact of the epidemic on the middle and downstream industries. Third, the production of equipment manufacturing industry has decreased significantly, and there may be pressure on manufacturing investment in the future. In April, the added value of general equipment manufacturing industry and special equipment manufacturing industry decreased by 15.8% and 5.5% respectively year-on-year. The decline of equipment manufacturing industry means that the willingness of manufacturing enterprises to update equipment and expand production may be relatively low. Fourth, the automobile manufacturing industry has been greatly impacted. On the one hand, the automobile industry chain is long and vulnerable to the impact of the supply chain brought by the epidemic. On the other hand, Jilin and the Yangtze River Delta are important automobile production cities. The epidemic situation in the two places is relatively serious, which has a great impact on the automobile industry. After the epidemic, residents’ demand for cars will rebound significantly, and car consumption is the key direction of policy support. There may be a situation of short supply in the future.
Consumption may face long-term difficulties. In April, the total retail sales of consumer goods fell more than expected, down 11.1% year-on-year, the lowest since March 2020. Excluding the price factor, the actual fell by 14% year-on-year, a greater decline. Under the current round of epidemic, consumption growth showed a cliff like decline similar to that in February 2020, with similarities and differences in structure. The same point is that the mandatory consumption is strong, and the optional consumption has fallen sharply. The difference is that the consumption of housing economy has not benefited significantly in this round of epidemic. The consumption of communication equipment (mobile phone, TV, etc.) and sports and entertainment are worse than that in February 2020. We believe that in the past two years, the growth of residential economic consumer goods may be rapid, and there has been a certain overdraft for the current demand. Moreover, the fracture of Shanghai online shopping logistics in this round of sealing and control also leads to the related consumption being weaker than the level in February 2020. After the impact of the epidemic in 2020, the recovery of consumption has been relatively slow. On the one hand, the occasional rebound of the epidemic in various places has led to the failure to fully recover the consumption scene; Second, the impact of the epidemic on Residents’ income has also restrained the upward height of consumption. Correspondingly, although there will be a rebound in consumption after this round of epidemic, the intensity may not be satisfactory. From the perspective of epidemic prevention and control, after the first wave of epidemic in 2020, although there are occasional cases everywhere, the overall economic openness is very high. At present, with the variation of the virus, its transmission speed and concealment are very strong, and the difficulty of prevention and control has greatly increased. At the same time, the intensity of sealing and control has also increased. There are more and more areas with a few cases, that is, sealing cities, which means that the degree of economic openness in the future may not reach the level after the epidemic in 2020. From the perspective of the economy, the income of residents will be greatly affected by the downward pressure this year. Therefore, on the whole, we believe that we should not expect too much from the height of this year’s consumption recovery.
Investment is the key to stabilizing the economy. From January to April, the total investment in fixed assets increased by 6.8% year-on-year, which is the only one in the main data that exceeded expectations. The current performance of manufacturing investment is quite strong. We estimate that the year-on-year growth rate in April was 6.4%. According to the three-year average growth rate, it is also 4.4%, which is a very good performance under the impact of the epidemic. Among them, high-tech manufacturing investment has a strong pull on the overall manufacturing investment, which can be confirmed by the relevant data of the Bureau of statistics. The industrial upgrading of enterprises is relatively insensitive to the epidemic and economic downturn, so it performs well. The upgrading trend of manufacturing industry is still continuing, which is optimistic. However, the overall growth of manufacturing investment is still greatly affected by enterprise expectations. Under the influence of the uncertainty of the current epidemic, enterprise expectations are difficult to stabilize, and manufacturing investment will face downward pressure in the future. The growth rate of infrastructure investment fell briefly. We estimate that the growth rate in a single month is 3% year-on-year, down from 8.8% last month. We believe that this is because the closure and control of the epidemic has hindered the construction of the project, and its impact is short-term. From the situation in February 2020, infrastructure investment also declined significantly. However, compared with the investment in consumption and manufacturing, infrastructure investment rebounded very fast, and there was a significant positive growth immediately after the release of the epidemic. Because infrastructure investment is driven by government behavior, it is not only not affected by economic expectations, but also countercyclical. The current period of great downward pressure on the economy is the time when infrastructure investment can play a role. Infrastructure investment is expected to rebound rapidly after the resumption of construction. The real estate industry has experienced a dark moment. Investment in real estate development decreased by 10% year-on-year in the same month. Real estate investment is doubly affected. On the one hand, it is cyclical pressure. Previously, the continuous decline of land acquisition and new construction area of real estate enterprises will inevitably be transmitted to the end of real estate investment; On the other hand, it is the impact of the epidemic. The epidemic prevention and control has affected the commencement of many projects, and a large number of construction workers in Shanghai have also been isolated and sealed. In the future, the real estate industry policy will mainly focus on two aspects: first, stabilize residents’ willingness to buy houses. In April, the sales of commercial housing decreased by 39% year-on-year, which is certainly because the epidemic has affected residents’ house viewing and purchase, but it is undeniable that endogenous cyclical downward factors are also very important. At present, local real estate regulation policies have been relaxed one after another, and the lower limit of mortgage interest rate has also been reduced from LPR to 20bp, which is a strong signal at the policy end. However, at present, the local mortgage interest rate is still much higher than LPR, and the effect of lowering the bottom line of mortgage interest rate will not be immediate. More policies are needed to guide residents’ purchase expectations. We believe that commercial housing sales are expected to hit the bottom and rebound in the future, but the rebound speed will be slower than that in 2020. It is necessary to further strengthen the policy. Second, real estate enterprises need necessary liquidity support. From January to April, the cumulative source of funds of real estate enterprises further decreased to 23.6% year-on-year. The cliff like decline of funds in place by real estate enterprises led to a sharp decline in land acquisition and a sharp decline in the area of new construction. At present, the policy has strongly stimulated the demand side of commercial housing, so the supply side should also “keep up”, otherwise the lack of housing supply in the future will lead to market imbalance, which will not only weaken the actual driving force of the economy, but also increase the rise of house prices.
Employment pressure continues to increase, and the main body of insurance is very important. In April, the urban unemployment rate rose by 0.3 percentage points to 6.1%. This is the last high value in history, only lower than February 2020. However, the structural problem of employment is more prominent today. The unemployment rate of the population aged 16-24 rose to 18.2%, the highest in history. Generally, the high unemployment rate of the population aged 16-24 appears in the graduation season of fresh students in July, which means that this figure may not decrease significantly with the unsealing of the epidemic in the coming months. The employment pressure of graduates this year is very great. The primary problem in alleviating employment pressure is to protect market players. On the one hand, we should continue to maintain the rescue efforts of fiscal policy, on the other hand, we also need to increase the support of monetary policy. It is necessary to reduce LPR to provide cheaper funds to renew the life of enterprises. The impact of the epidemic on the economy this year far exceeded the initial expectations of the market. The economy is likely to fall below 3% in the second quarter. It is undoubtedly very difficult to achieve the annual economic growth target. However, the Politburo meeting has set the tone to “strive to achieve the expected objectives of economic and social development throughout the year”, which means that no matter how difficult it is, the policy side will go all out. This year, it may be difficult for the consumer side to make efforts, and the manufacturing investment may also be relatively weak. Infrastructure investment should rebound rapidly, and the real estate policy still needs to continue to make efforts. Releasing real estate, building infrastructure and protecting the main body are the three directions of the policy.
Risk warning: the epidemic rebound exceeded expectations; The strength of the policy was less than expected.
