In December, the Manufacturing Purchasing Managers' Index (PMI) was 49%, a decrease of 0.4 percentage points compared to the previous month. What does this data indicate?

Economic Recovery: Short-lived or Sustainable?

Everything has been within expectations and foreseen.

The expectation was formed on September 30th, when the PMI surged above 50. Why? Here are the reasons, unaltered from that time.

The manufacturing PMI for September was 50.2, marking four consecutive months of recovery and the first expansion since April. How should this be interpreted?

Various economic indicators are improving, which is good. But can this growth sustain?

What are the reasons behind the industrial profit increase in August and the positive turn of PMI in September?

Since June 2021, the new construction area of real estate has been continuously declining. By November 2022, it ended its decline, dropping from 270 million square meters to 80 million square meters, a significant reduction. However, since November 2022, although it has been lingering at a low level, it has not continued to decline, maintaining around 80 million for ten months.

During these ten months, however, the inventory of industrial finished products continued to decrease, with the growth rate dropping from 12.6% in November 2022 to 1.6% in July 2023. Thus, even though the demand for raw materials in real estate was low, the decrease in inventory was faster. This led to a situation where: Demand is low, but supply is even lower. As a result, by the end of June, commodity prices began to rise. The price increase drove companies to enter a mode of restocking, which significantly boosted demand, leading to a rise in industrial profits, PMI returning to the expansion zone, and other outcomes.

The low level of new construction area in real estate lingered without further decline, but the inventory was continuously decreasing. Eventually, demand exceeded inventory.

Is it possible for this recovery to have a long duration?

It’s unlikely. Because the reason for this recovery is not an increase in demand leading to a shortage in supply. It is merely a recovery caused by less demand and even lesser supply. As the demand was originally low, the demand for restocking will also be low, leading to a quick end to this cycle.

The data that actually reflects enterprises' views on the economy is the PMI employment sub-index. The level of this data reflects the willingness of enterprises to hire labor. Only when enterprises are truly willing to increase hiring can it represent a genuine positive outlook on the economy.

In April 2020, right after the massive outbreak and lockdowns of COVID-19 in March, the economy suffered severe damage. However, the PMI employment sub-index directly hit 50.3 in April, reaching an eight-year high. This indicates that Chinese enterprises did not believe the epidemic would have a lasting impact on the economy and were quick to increase recruitment. However, although the PMI has turned positive this month, the employment sub-index is still lingering at a very low position. This indicates that enterprises do not believe the economy will truly improve. If businesses do not believe in a real economic turnaround, they will not increase investment or expand recruitment, leading to production and consumption unlikely to experience a long-term rise.

A genuinely sustainable recovery must be one where demand can continuously increase. For instance, the real estate boom and inventory reduction that began in 2016 led to continuously rising real estate sales over the next five years. Without such a level of demand increase, this recovery is nothing more than a fleeting phenomenon.

Deciphering December’s PMI: A Glimpse into China’s Economic Pressure

Once again, PMI data was released during the weekend holiday. Looking at it, December’s figures are still below the threshold of optimism.

The economic pressure is quite significant.

December’s PMI is 49, even lower than last month.

However, I’m waiting for the Caixin PMI to come out, which might present a more favorable view.

As usual, let’s analyze the sub-indices:

The Production Index is at 50.2%, a decrease of 0.5 percentage points from the previous month, still above the critical point, indicating the manufacturing production continues to expand.

The New Orders Index is at 48.7%, down 0.7 percentage points from the previous month, indicating a decline in market demand for manufacturing.

The Raw Materials Inventory Index is at 47.7%, down 0.3 percentage points from the previous month, indicating a reduction in the inventory of major raw materials in manufacturing.

The Employment Index is at 47.9%, down 0.2 percentage points from the previous month, indicating a decrease in employment enthusiasm in the manufacturing sector.

The Supplier Delivery Time Index stands at 50.3%, unchanged from the last month, above the critical point, indicating continued acceleration in the delivery time of raw material suppliers for the manufacturing industry.

It’s apparent that 4 out of 5 sub-indices are lower than last month.

This doesn’t speak well for the vitality of the manufacturing sector.

In fact, the economic data from the past few months have clearly told us that our previous optimism about China’s destocking cycle was overestimated.

China’s destocking did not end in the 3rd quarter of 2023, as most analysts had predicted based on historical experience. It seems, the actual completion of destocking will likely be around mid-2024.

I have written an article analyzing this:

“When will China’s next large-scale restocking occur?”

The reason for the previous misjudgment is simple:

Post-reopening, China’s domestic demand recovery was significantly lower than expected.

There was no so-called revenge spending.

Because this premise was wrong, the subsequent predictions were also incorrect.

On the other hand, it’s not that demand has disappeared; it’s just weak.

Many people like to swing from one extreme to another when analyzing issues.

A slight downturn and there are proclamations of economic collapse.

However, it’s not necessary to be so pessimistic. Weak demand means slow destocking, but eventually, inventories will be cleared.

Due to the characteristic of enterprise stockpiling, when restocking begins, it will seem like corporate profits have suddenly improved.

After the second half of 2024, as restocking in China and the US begins, the economy will feel much better.

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Digging into overlooked economic data and decrypting hidden financial truths, I am Sanrenhe, continuously updating with economic and financial insights. Follow for more in-depth analysis. If you find my answer helpful, please like and thank you.

Analyzing China’s December PMI: Manufacturing and Non-Manufacturing Sectors

To provide more information for readers:

National Bureau of Statistics: December Manufacturing PMI at 49%

Edited by Bi Luming

On December 31st, data from the National Bureau of Statistics showed that the Manufacturing Purchasing Managers' Index (PMI) for December was 49.0%, a decrease of 0.4 percentage points from last month, indicating a slight decline in the manufacturing sector’s prosperity level. Zhao Qinghe, a senior statistician from the Service Industry Survey Center of the National Bureau of Statistics, provided an interpretation.

In December, the manufacturing PMI was 49.0%, down 0.4 percentage points from last month; the non-manufacturing business activity index was 50.4%, up 0.2 percentage points from last month; the comprehensive PMI output index was 50.3%, slightly down 0.1 percentage point from last month, indicating that the overall economic output level in China remains stable.

December Manufacturing PMI at 49%

1. Operation of China’s Manufacturing Purchasing Managers' Index

In December, the manufacturing PMI was 49.0%, down 0.4 percentage points from the previous month, indicating a slight retreat in the sector’s prosperity.

Looking at the size of the businesses, the PMI for large enterprises was 50.0%, down 0.5 percentage points, at the threshold level; the PMIs for medium and small-sized enterprises were 48.7% and 47.3% respectively, both below the threshold level and decreasing from the previous month.

Among the sub-indices that constitute the manufacturing PMI, the production index and supplier delivery time index are above the critical point, while the new orders index, raw material inventory index, and employment index are below the critical point.

The production index is 50.2%, down 0.5 percentage points from the previous month, still above the critical point, indicating that manufacturing production continues to expand.

The new orders index is 48.7%, down 0.7 percentage points from the previous month, indicating a decline in manufacturing market demand.

The raw material inventory index is 47.7%, down 0.3 percentage points from the previous month, indicating a decrease in the stock of main raw materials in manufacturing.

The employment index is 47.9%, down 0.2 percentage points from the previous month, indicating a decrease in the employment situation in manufacturing.

The supplier delivery time index is 50.3%, unchanged from last month and above the critical point, indicating that the delivery time of raw material suppliers in the manufacturing industry continues to accelerate.

2. Operation of China’s Non-Manufacturing Purchasing Managers' Index

In December, the non-manufacturing business activity index was 50.4%, up 0.2 percentage points from the previous month, indicating a slight acceleration in the expansion of the non-manufacturing sector.

Looking at different sectors, the construction industry business activity index was 56.9%, up 1.9 percentage points from last month; the service industry business activity index was 49.3%, the same as last month. Among them, industries such as postal services, telecommunications, broadcast television and satellite transmission services, monetary financial services, and insurance have business activity indices above 55.0%, indicating higher prosperity; while industries like water transport, capital market services, and real estate have indices below the critical point.

The new orders index for the non-manufacturing sector was 47.5%, up 0.3 percentage points from the previous month, indicating a continued narrowing in the decline of market demand. Looking at different sectors, the new orders index for the construction industry was 50.6%, up 2.0 percentage points from last month; for the service industry, it was 47.0%, up 0.1 percentage points.

The input price index was 49.6%, down 0.2 percentage points from the previous month, indicating a general decline in the input prices for non-manufacturing enterprises. The input price index for the construction industry was 51.4%, down 1.7 percentage points from last month; for the service industry, it was 49.3%, up 0.1 percentage points.

The sales price index was 49.3%, up 1.0 percentage points from the previous month, indicating a narrowing in the overall decline in sales prices for the non-manufacturing sector. For the construction industry, the sales price index was 51.7%, up 0.4 percentage points; for the service industry, it was 48.9%, up 1.2 percentage points.

The employment index was 47.1%, up 0.2 percentage points from the previous month, indicating a continued recovery in the employment situation in the non-manufacturing sector. For the construction industry, the employment index was 51.7%, up 3.5 percentage points; for the service industry, it was 46.3%, down 0.4 percentage points.

The business activity expectation index was 60.3%, up 0.5 percentage points from last month, indicating that most non-manufacturing enterprises are more optimistic about the near-term market recovery and development. For the construction industry, the business activity expectation index was 65.7%, up 3.1 percentage points; for the service industry, it was 59.4%, up 0.1 percentage points.

3. Operation of China’s Comprehensive PMI Output Index

In December, the comprehensive PMI output index was 50.3%, slightly down 0.1 percentage point from last month but still above the critical point, indicating that the overall business production and operation activities in China continue to expand. The manufacturing production index and non-manufacturing business activity index that constitute the comprehensive PMI output index were 50.2% and 50.4% respectively.

Compiled by Daily Economic News from the National Bureau of Statistics

Manufacturing Sector and Economic Indicators

In November, the PMI stood at 49.4%, marking a decrease of 0.5. Now, in December, it’s at 49%, with a decrease of 0.4. Can we say the decline is narrowing? However, the expected PMI was around 49.8 (expected growth), which seems to defy mainstream expectations.

As for the manufacturing sector, our country, with only 1/6 of the population, contributes to 29% of global manufacturing. This might seem excessive, considering that even in a globally divided labor market, there should be a fair distribution of tasks. For instance, if I contribute more to manufacturing, shouldn’t I have an advantage in agricultural supply, energy supply, or technological exemptions? In reality, this isn’t the case.

The manufacturing industry has become something that persists to support the existing economic model. Coupled with yesterday’s revelation of a 2022 GDP correction, with over 800 billion falsely reported in the secondary sector, it’s essentially propping up an unreasonable scale of manufacturing. We’re not saying the economy should move away from the tangible or that material production is bad. Instead, we’re emphasizing that everything has a limit and a balance. The significant oversupply in Chinese manufacturing is an undeniable fact, a problem that has been officially acknowledged and addressed repeatedly over the past decade through initiatives like “supply-side reform.”

The decline in the manufacturing sector is simply a correction of past mistakes. Furthermore, the entire economic model does not solely rely on manufacturing. All in all, the composite PMI isn’t terrible; it has declined slightly but remains above 50, indicating relative stability.

December’s CPI and PPI might not fare well either. With the PMI forecasted to reach 49.8, the CPI and PPI are expected to be -0.5 and -2.9, respectively. With the ongoing decline in the PMI, December’s data is likely to look unfavorable, solidifying the possibility of a sustained deflationary trend.

Highlights: The construction industry index continued to rise, reaching 56.9, indicating a very favorable outlook.

Is the real estate sector making a comeback? Or are there any major projects in progress?

The Significance of the Decline in Manufacturing Purchasing Managers' Index

To begin with, it’s important to clarify that the decline in the Manufacturing Purchasing Managers' Index (PMI) during this period might be considered “good news.” First, we need to understand what this decline in the PMI signifies.

A decrease in the Manufacturing PMI suggests a reduction in the number of orders, which could lead to companies scaling back production or temporarily halting production lines. There may be a decrease in demand for raw materials and intermediate products, resulting in a lower capacity utilization rate in related industries. On the surface, these all seem like “bad news.” So, why do we consider it “good news”?

The reason is that, as a manufacturing nation, we currently have a noticeable oversupply of production capacity on the supply side. In all industries, especially manufacturing, overcapacity is prevalent. There is almost no situation where Chinese manufacturing excels in production technology but lacks capacity.

However, the decrease in overall demand is an objective reality. If the Manufacturing PMI were to rise at this juncture, it could indicate that something drastic is happening. Companies might be engaging in a final “struggle for survival,” involving extreme cost-cutting measures, reductions in labor costs, and resilience against losses. This intense competition could lead to the elimination of a large number of companies, which would be highly detrimental to the national economy. Therefore, the absence of such a scenario is a fortunate outcome.

Simultaneously, financial support is being provided to businesses, while the decline in the Manufacturing PMI suggests that many companies, especially those in manufacturing, are choosing to hold onto their funds rather than blindly expand investments or engage in cutthroat competition. This decision provides some reassurance.

I have always maintained that “unemployment is far more damaging than wage reductions.” Many manufacturing companies, amidst fierce competition and overcapacity, are providing their employees with extended leave and offering basic salaries or even the most fundamental social security benefits, which can be seen as contributions to society.

Economic Recovery Is Not as Rapid as Expected

Let’s make one point clear, even though we are almost in 2024, the customary holiday season for most people is not the Gregorian New Year but the Lunar New Year. So, in normal circumstances, many working individuals are still on their way to work, and taking a break is a luxury, typically reserved for the coming Lunar New Year, which is just a few days away.

However, this year’s situation is quite unusual.

If you return to your hometown, you’ll notice that a significant number of migrant workers and even white-collar workers who have been laid off have returned home ahead of schedule.

The reason is simple: they don’t have jobs anymore.

If you visit local labor markets these days, don’t look at the online job postings; instead, take a look at the various day labor markets in different regions. Over the past two months, almost all industries have been hit severely.

The first grim aspect is the scarcity of job opportunities. In the past, even before dawn, there would be a group of bosses and labor brokers picking workers. As long as you were willing to work hard, you could find something to do. But now, it’s different. Jobs are scarce, and when bosses are picking workers, those who lack energy and vitality don’t stand a chance. The older ones and those physically weak are out of luck.

The second grim aspect is the low wages. In the past, in the day labor market, you could choose to be paid hourly or daily. Daily wages were generally around 300 to 400 RMB (Chinese Yuan), which might seem decent, but remember, these jobs involved physical labor, not sitting in an office. However, now things have taken a downturn. Day labor wages have dropped to 200, 180, or even 150 RMB, hitting rock bottom.

The supply and demand balance has shifted again, and even if you’re unwilling to work, there are plenty of people willing to take your place.

For many migrant workers, they are facing a dilemma: Should they continue working?

The issue is that most of the people working in these day labor markets are from out of town. Local residents in first-tier cities have plenty of job options, whether it’s becoming a security guard or working as a delivery driver for a ride-hailing service. When you calculate the overall performance, local residents often outperform those from other regions. For day laborers from out of town, there are additional costs to consider—living expenses, transportation, and accommodation.

If the wage level is relatively high, it might be worth it, but if the wages are low, you might end up not saving much after factoring in all the costs.

The consideration here is not about losing money but about what? After working so hard here for so long, dedicating yourself to labor, and earning just a couple of thousand RMB a month, you might even harm your health.

For this reason, many day laborers have chosen to return to their hometowns prematurely. After all, their homes are in the villages, where they can get by without spending much money. Working hard outside for meager earnings doesn’t make sense when you can stay at home.

Those in the construction industry have it even tougher. In the past, construction workers related to the real estate sector were a significant source of employment. However, with the recent downturn in the real estate market, the demand for these jobs has vanished.

Now, construction workers either return home or are in the process of demanding unpaid wages.

But getting paid isn’t easy this year either because many employers are struggling financially. White-collar workers are facing similar challenges. With so many layoffs this year and the year-end approaching, it’s unlikely that companies are still hiring. Even if someone is desperately looking for a job, there’s simply no demand in the current job market. So, they have to wait until after the Lunar New Year to resume their job search.

The economic chain reaction continues, with one link affecting the next. When businesses aren’t making money, workers can’t earn a living. People without money in hand are hesitant to invest and consume, making it even more challenging for businesses.

This year, businesses are cautious about expanding their workforce; they are focused on survival. Many business owners are operating under debt, and poor data is not surprising.

Anyway, it’s nearly the end of 2023, and this year’s difficulties are almost behind us. Let’s hope for a better year ahead.

Economic Indicators for December Indicate Lingering Economic Challenges

In December, the Purchasing Managers' Index (PMI) for the manufacturing sector was 49.0%, a decrease of 0.4 percentage points from the previous month.

The non-manufacturing business activity index was 50.4%, rising by 0.2 percentage points compared to the previous month.

The Composite PMI output index was 50.3%, showing a slight decrease of 0.1 percentage point from the previous month.

The overall economy continues to hover at the bottom.

From a global perspective, major economies such as Europe and the United States have seen continuous contraction in their manufacturing sectors throughout the year. In December, the preliminary manufacturing PMI values for the United States and the Eurozone were 48.2% and 44.2%, respectively.

The main challenges facing businesses are a decrease in overseas orders combined with insufficient domestic demand.

In December, the overall economic activity level saw a slight decline, influenced by factors such as the off-season in certain basic materials industries.

Specifically:

1. Production remains in expansion.

   The production index was 50.2%, a decrease of 0.5 percentage points from the previous month but still above the critical point. Manufacturing enterprises have maintained production expansion for seven consecutive months.

   In terms of industries, sectors such as wood processing and furniture, metal products, general equipment, and electrical machinery and equipment all had production indices higher than 54.0%, indicating rapid growth in these related industries.

   However, industries such as textiles, petroleum, coal, and other fuel processing, and non-metallic mineral products had production indices below the critical point, indicating insufficient capacity utilization.

2. New orders have declined slightly.

   The new orders index was 48.7%, down by 0.7 percentage points from the previous month, indicating weak demand in the manufacturing sector.

   Looking at specific industries, sectors like metal products, railway, shipbuilding, aerospace equipment, computer communication, and electronic equipment continued to have new orders indices above the critical point, signifying expanding market demand.

   On the other hand, industries like textiles, clothing, chemicals, and non-metallic mineral products had lower new orders indices, indicating ongoing insufficient market demand.

3. New growth drivers continue to expand.

   In key industries, the PMI for high-tech manufacturing and equipment manufacturing was 50.3% and 50.2%, respectively, higher than the overall manufacturing level, indicating continued expansion.

   The PMI for the consumer goods industry was 49.4%, showing a slight decline in economic activity.

   The PMI for energy-intensive industries was 47.4%, 1.6 percentage points lower than the overall manufacturing level, indicating relatively low economic activity.

4. Market expectations remain stable.

   The production and operation expectations index was 55.9%, up by 0.1 percentage points from the previous month, staying in the high economic zone for six consecutive months.

   In various industries, driven by the approaching New Year and Spring Festival, production and operation expectations in the consumer goods industry, including agricultural and sideline food processing and refined tea, have all risen to above 60.0%, indicating a high level of economic activity.

In December, the non-manufacturing business activity index was 50.4%, up by 0.2 percentage points from the previous month, indicating an acceleration of expansion in the non-manufacturing sector.

1. Service sector business activity remains steady.

   The service sector business activity index was 49.3%, remaining unchanged from the previous month.

   Affected by recent factors such as cold waves, some service industries related to travel consumption have shown weaker market activity. Among them, the business activity indices for water transportation, aviation transportation, accommodation, and resident services were all below 46.0%.

   Meanwhile, industries such as postal services, telecommunications, radio and television broadcasting, satellite transmission services, monetary and financial services, insurance, etc., had business activity indices above 55.0%, indicating a continuing rapid growth in business volume.

2. Construction industry business activity accelerates.

   The construction industry business activity index was 56.9%, up by 1.9 percentage points from the previous month. Some enterprises have accelerated construction progress ahead of the Spring Festival holiday, leading to an improvement in the construction industry’s economic activity level.

In every industry, there’s a feeling that in the whole month of December, orders are relatively scarce. Industries like heavy chemicals, mechanical manufacturing, and basic construction have many projects in a state of pause or semi-pause.

We are a small company, and in the first twenty days of December, we only had two orders.

There were many inquiries, but very few contract executions.

As a result, the overall outlook for 2024 is not optimistic.

Fortunately, we still have overseas projects, which are set to kick off before and after the Spring Festival. This provides some peace of mind.

If the economy picks up in May or June next year, there is hope for economic development. If it continues to stagnate, the days ahead will be tough.

Economic Challenges and the Importance of Domestic Market in China

In the past few months, there has been some recovery in orders, but it’s still not looking too good. Demand remains insufficient, with the new order index at 48.7% (previous value 49.4%), new export order index at 45.8% (previous value 46.3%), and the backlog order index at 44.5% (previous value 44.4%).

The service industry PMI also shows a low water transport business index, indicating that December’s imports and exports are likely to be similar to November.

Manufacturing PMI has been declining for four consecutive months and has been below the boom-bust line for three months, showing a concerning trend. If CPI data continues to decline, deflation is inevitable, and the economy may face difficulties. In a challenging economic situation, depleting savings is not a sustainable option; a better choice might be to brace for tough times.

Meanwhile, the non-manufacturing sector is showing signs of recovery, suggesting that most non-manufacturing enterprises are more optimistic about the recent market recovery. However, there are still shortfalls compared to the prosperous period.

Data indicates that the risk of economic contraction is increasing. In such an economic situation, a dual-cycle strategy and a unified domestic market are crucial. One of the main reasons is that ordinary people don’t have much disposable income. Despite high domestic savings rates, few are willing to withdraw their savings from the bank in these uncertain times.

If

1. You believed that the Chinese economy was doing well while the European economy was not, then a 0.4 decline is a bad sign.

2. You believed that the Chinese economy was not doing well while the European economy was doing well, then a 0.4 decline is a good thing.

3. You believed that the entire global economy was not doing well, then a 0.4 decline is considered normal.

On December 31st, the National Bureau of Statistics released data indicating that in December, the Purchasing Managers' Index (PMI) for the manufacturing sector was 49%, decreasing by 0.4 percentage points compared to the previous month. The manufacturing industry’s business activity level experienced a slight decline.

In December, the textile industry and some manufacturing sectors related to raw materials and high energy consumption experienced sluggish demand in the market (with a decline in the new orders index).

Manufacturing Sector and Global PMI Trends

This year, the global Purchasing Managers' Index (PMI) for the manufacturing sector stands at around 48%. The United States' data aligns closely with the global trend.

Our PMI of 49% is slightly above the global index. Currently, there are no significant new technologies or products, and worldwide high inflation coupled with weak consumer demand has led everyone to focus on maintaining existing market shares. Maintaining a PMI of 49% is considered outstanding performance under these circumstances.

If the Middle East conflict escalates, our PMI could see some improvement.

Recent developments in China’s international diplomacy have been lively. If a new international trade environment that reduces reliance on the US dollar is established, our prospects could significantly improve. At present, pursuing business opportunities by securing orders from the United States, Japan, and South Korea is the most practical approach.

My factory currently relies primarily on the European renewable energy market. If our orders from Europe diminish, we are considering exploring business opportunities in the Middle East. In the future, we may focus on doing business along the Belt and Road initiative. However, in my experience, previous transactions with Iran and Turkey did not yield ideal payment results. Therefore, when dealing with these Middle Eastern countries in the future, it will be essential to secure payment like we do for equipment, with at least a 70% down payment before proceeding, to avoid potential payment issues or accusations of quality problems.

Manufacturing Sector and Global PMI Trends

This year, the global Purchasing Managers' Index (PMI) for the manufacturing sector stands at around 48%. The United States' data aligns closely with the global trend.

Our PMI of 49% is slightly above the global index. Currently, there are no significant new technologies or products, and worldwide high inflation coupled with weak consumer demand has led everyone to focus on maintaining existing market shares. Maintaining a PMI of 49% is considered outstanding performance under these circumstances.

If the Middle East conflict escalates, our PMI could see some improvement.

Recent developments in China’s international diplomacy have been lively. If a new international trade environment that reduces reliance on the US dollar is established, our prospects could significantly improve. At present, pursuing business opportunities by securing orders from the United States, Japan, and South Korea is the most practical approach.

My factory currently relies primarily on the European renewable energy market. If our orders from Europe diminish, we are considering exploring business opportunities in the Middle East. In the future, we may focus on doing business along the Belt and Road initiative. However, in my experience, previous transactions with Iran and Turkey did not yield ideal payment results. Therefore, when dealing with these Middle Eastern countries in the future, it will be essential to secure payment like we do for equipment, with at least a 70% down payment before proceeding, to avoid potential payment issues or accusations of quality problems.

New Year Couplets

Upper line: Support manufacturing, manufacturing will decline. Lower line: Restrain services, services are doing fine. Horizontal scroll: Parents favor one’s own children.

In the previous four consecutive months of growth, there has been a three-month consecutive decline now, posing significant challenges to the recovery of the manufacturing sector.

In December, similar situations were observed in China, the United States, Japan, and Europe, with continuous contractions in their manufacturing sectors.

China had an expected value of 49.4, but the actual value was 49.

The United States had an expected value of 49.5, but the actual value was 48.2.

Japan’s actual value was 47.7.

The Eurozone had an expected value of 44.6, but the actual value was 44.2.

Interestingly, Vietnam and South Korea’s manufacturing PMI indices have returned above the boom-bust line. As leading indicators of global exports, could this be a sign of a global demand recovery?

Don’t need to look at these short-term indicators.

Next year, monetary and fiscal policies will make a comprehensive effort, with a massive influx of funds to support large-scale investment and construction projects.

In the future, both sides of production demand will be highly active, and the economy will return to a high-speed expansion range.

In the past two years, the economy has encountered some setbacks, partly due to masks, and partly due to being misled by some incorrect economic theories. Loosening up, increasing leverage at the central level, strengthening fiscal policies comprehensively, and reducing excessive reliance on the private sector, the economy is likely to strengthen comprehensively.

Inflationary Pressure Persists

The economic outlook indicates a probable continuation towards deflation in the future. If the CPI is announced as negative next month and remains negative for three consecutive months, will anyone still discuss inflation? The economic trend is already quite clear; there is no V-shaped reversal in sight. Everyone must be cautious about their finances, avoid buying real estate at this time, and refrain from taking on debt. It’s essential to be financially prudent and patient. Only when deposit interest rates drop close to 0, which might be around 5 years from now, can we consider that property prices have reached their lowest point, possibly returning to the levels of 2015.

Of course, the cost of this approach is a continuous contraction in overall societal consumption and a rising unemployment rate, exacerbating a vicious cycle of deflation.

Focusing on Resident Income for Effective Economic Growth

I have always believed that a direct push towards increasing residents' incomes is the most effective way. Other methods of transmission are challenging, slow, and subject to decay, often falling short of the desired results. Satisfying the thirst for increased income among residents makes everything else manageable. Without addressing this thirst, no amount of stimulus will be effective.

The policy transmission process is fraught with obstacles that take time to fill. Even when filled, they may require further maintenance. It’s a time-consuming process, but no one can afford to wait. With such a long path and numerous hurdles, existing policies are struggling to fill all the gaps; it’s a gradual process.

Transformation and upgrading are necessary but not something that can happen overnight. The economy can’t wait, and the pressure on the common people can’t wait either. Once the people can’t wait, everything else becomes irrelevant. No matter how good the intentions are, without a solid foundation, it’s all just empty talk.

We shouldn’t proceed slowly, nor should we try to push a small pebble with a giant lever. We shouldn’t let a large reservoir seep into the channels. Directly targeting the areas in most need of support would solve the problem. When the process experiences more than 90% decay, it loses its meaning, and the result becomes ten times the effort for half the result.

Within the current economic indicators, there should be a direct indicator reflecting the level of hardship faced by residents. It should intuitively represent the economic situation, rather than navigating through macro indicators that may not accurately regulate the economy. When the grassroots are struggling, nothing can truly develop.

If the income of the grassroots does not improve, no indicator, no matter how good, will be effective. We no longer live in an era lacking material production and supply; on the contrary, there is an oversupply of material capacity. More stimulation won’t help; we need income support to digest these surplus goods.

Stimulating producers further to create more products won’t be useful if they can’t be sold. Without sales, how can loans be used? Without loans, what is there to stimulate? Producing so much without sales is unprofitable, leading to business closures.

Supporting only one side is not enough; we must focus on increasing people’s income for it to be effective. Otherwise, a robust economic cycle cannot be established, making it challenging to initiate domestic circulation. Without income, consumption cannot be stimulated; with income, there’s no need for excessive stimulus.

Don’t worry that providing income support will lead to laziness; there are very few who would choose that path. Compared to economic development, this reasoning is far-fetched. Everyone wants to achieve something and show their progress, but when forced by the pressures of survival, it’s difficult to think beyond.

Maslow’s hierarchy of needs theory applies to almost everyone; when basic survival needs are met, new needs naturally arise. Isn’t that the beginning of collective innovation and creativity? What challenges can’t be overcome then?

Moreover, many people are afraid to start their own businesses because failure could jeopardize their livelihoods. With a safety net for food, housing, healthcare, and education, people won’t have to worry about their basic needs. That’s when innovation and creativity will flourish.

In our current fast-paced life, it’s nearly impossible to develop products like ChatGPT when simply putting food on the table is a concern. Who has the bandwidth to research such things? Companies, too, are unlikely to invest in research when their focus is on extracting more money from the common people; they might, at best, mimic others.

However, there are experts among the public who, without such concerns, can collaborate and create unexpected breakthroughs. They might inadvertently develop products that lead progress. These individuals are the source of vitality.