Data source: National Bureau of Statistics

The added value of industrial enterprises above designated size increased by 6.7% year-on-year, and corporate profits increased by 17.2% year-on-year...In the first half of this year, China's industrial quality and efficiency have steadily improved, and capacity utilization and profitability are at a historically high level, adding considerable weight to the steady improvement of the real economy.

People have noticed that the overall industrial situation is improving, and the differentiation between industries is also intensifying. To consolidate the good momentum and keep the real economy steady and long-term, we need to identify the direction and continue to work hard. The Political Bureau of the CPC Central Committee held a meeting recently proposed "enhancing innovation and developing new momentum" when deploying economic work in the second half of the year. Many experts believe that this is the key to promoting high-quality development of the real economy.

Is the high profit growth driven by prices?

Price increases have indeed formed a clear support, but at the same time new momentum is also significantly enhanced

In 2017, the growth rate of added value of industrial enterprises above designated size in China rebounded to 6.6%, and further increased to 6.7% in the first half of this year, and the industrial economy gradually warmed up.

Capacity utilization has steadily increased. Last year, China's industrial capacity utilization rate rebounded to 77%, reaching the best level in five years; in the first half of this year, it rebounded by 0.3 percentage points year-on-year.

Electricity consumption and freight volume both increased. In the first half of the year, the total electricity consumption of the whole society increased by 9.4% year-on-year, of which the growth rate of the secondary industry reached 7.6%; the total freight volume of the whole society increased by 6.9% year-on-year.

Enterprise profit levels continue to rise. In 2016 and 2017, the profit margin of the main business income of industrial enterprises above designated size increased by 8.5% and 21% year-on-year respectively. In the first half of this year, it increased by 17.2% on the higher base of the same period last year.

What supports the overall improvement of corporate benefits? Experts analyzed that one reason that cannot be avoided is the rebound in industrial production prices.

In the first five months of this year, the growth rate of main business income of the six major industries, including petroleum, chemical, non-metallic mineral products, steel, nonferrous metals, and electricity, was higher than the industrial average. "The recovery of resource-based industries is mainly due to the impact of price rebound," said Pan Jiancheng, deputy director of the National Bureau of Statistics' China Economic Monitoring Center.

"In June, industrial producer prices and purchase prices rose by 4.7% and 5.1% year-on-year, respectively, 0.6 and 0.8 percentage points higher than in May. Therefore, although the growth rate of industrial production in June fell from that in May, the price increase has provided significant support for profit growth," said Dr. He Ping of the National Bureau of Statistics' Industrial Department. According to estimates, the impact of price changes on profit growth in June was 0.3 percentage points higher than in May.

"The rebound in prices in resource-based industries shows that supply-side reforms such as capacity reduction have achieved significant results, but we must also see that these industries have not yet truly entered the track of innovation-driven and virtuous cycles." Pan Jiancheng believes that due to the external environment, there are many uncertainties in the price fluctuations of bulk commodities, and the growth supported by the price rebound is not stable. Furthermore, the accelerated growth of these industries depends on infrastructure investment and real estate investment, and "we should not be blindly optimistic about their growth."

For this reason, we need to stay sober, but we don't need to be too suspicious. New products and new formats are becoming more active, and new momentum is significantly enhanced, which also provides strong impetus for the real economy. In the first half of the year, the added value of China's high-tech industry and equipment manufacturing industry increased by 11.6% and 9.2% year-on-year, respectively, 4.9 and 2.5 percentage points faster than the above-scale industry; related industries and products representing technological progress and transformation and upgrading performed outstandingly, and the output of new energy vehicles, industrial robots, integrated circuits and other industries achieved double-digit growth.

The continuous deepening of reform has also enhanced the vitality of the market. In the first half of the year, China registered an average of 18,100 new market entities per day, and entrepreneurship and innovation flourished; the cost of industrial enterprises above designated size was 84.42 yuan per 100 yuan of main business income, a year-on-year decrease of 0.37 yuan, and the burden on enterprises is gradually being reduced.

How do you view the "uneven cold and warm" of enterprises?

Transformation and upgrading are accelerating, and enterprises should take the initiative to introduce new momentum and form linkage between upstream and downstream

In the first half of the year, the most outstanding industry in the industrial field was new energy vehicles - production and sales increased by 94.9% and 111.5% year-on-year respectively. Although both are "iron lumps", the situation of the machine tool industry is very different from that of the automobile industry.

"The differentiation within the industry is indeed intensifying." Pan Jiancheng analyzed that the industries with higher prosperity in the first half of the year are either highly related to new technologies, new formats, and new models, such as medicine, electronic information equipment, equipment, instrumentation and other industries, or closely related to consumption upgrades, such as food and beverage, furniture and home appliances. Relatively speaking, although the prosperity of resource industries such as steel and coal has rebounded compared with the previous period, it is still relatively low among many industries. In addition, affected by the continued rise in labor costs and increased environmental protection pressure, the prosperity of labor-intensive industries such as textiles and clothing, shoemaking, and printing and dyeing, papermaking and other industries is also relatively low.

Wei Jigang, director of the second research office of the Industrial Economics Department of the Development Research Center of the State Council, said that with the waves of informatization and economic globalization, the transformation and upgrading of the real economy is accelerating. "Whoever can seize the opportunity will be able to catch up and stand out. Whoever is slow to act may be marginalized."

"Differentiation is an inevitable phenomenon in the operation of the real economy, but if differentiation intensifies, or even "ice and fire", it needs to be given enough attention." Pan Jiancheng believes that for industries with low prosperity, introducing new momentum and improving production efficiency through technological transformation, equipment upgrading and management innovation is the only way out in the future.

While the industry is "unevenly cold and warm", there is also a "seesaw" phenomenon between the upstream and downstream of the industrial chain. In the first half of the year, in the same non-ferrous metal industry, the profits of the upstream mining industry increased by 20.7% year-on-year, but the profits of the downstream non-ferrous metal smelting and rolling processing industry decreased by 11.5% year-on-year.

Some downstream companies "complained" that in the past two years, the prices of many raw materials have doubled, which has brought great pressure to downstream companies, and all the profits have gone to the upstream companies. The head of a container manufacturing company in Qingdao said that he hopes that the price of raw materials will return to a reasonable range, "so as not to squeeze the downstream industry out."

How to "level" the "seesaw"? "Many companies often only see short-term and local interests. The relationship between upstream and downstream companies is not a linkage, mutual benefit and win-win relationship, but a relative separation and mutual demand, which is not conducive to the healthy development of the real economy." Wei Jigang believes that the key to solving the problem lies in creating a unified, open, competitive and orderly market system to make the supply chain more scientific and efficient, which is also an important part of building a modern economic system. "In the future, all parties concerned should try to stand at the height of the entire industrial chain, create a healthy industrial ecology, and work together upstream and downstream to cope with market fluctuations."

In this regard, the cooperation between the coal and power industries is worth learning from. In the first half of the year, under the joint effect of the "medium- and long-term contract system" and the "base price + floating price" pricing mechanism, the medium- and long-term contract price of thermal coal has always been stable in a reasonable range.

Where to revitalize the real economy?

Accelerate the transformation of new and old kinetic energy, grasp the dialectics of "breaking" and "establishing", and find the balance between "stability" and "progress"

"At present, the production and sales volume of new energy vehicles accounts for less than 3% of the automobile industry. Even if it doubles, the driving force is limited." Pan Jiancheng said that this shows that we still urgently need to accelerate the pace of growth of new kinetic energy.

In the second half of the year, how should we "enhance innovation and develop new kinetic energy"?

Resolutely get rid of development inertia and say goodbye to path dependence.

"At present, measures such as vigorously eliminating backward production capacity, strict environmental and quality standards, and increasing law enforcement have become effective means to reduce old kinetic energy." Jiang Feitao, deputy director of the Industrial Operation Office of the Institute of Industrial Technology of the Chinese Academy of Social Sciences, believes that breaking the old kinetic energy can create market space for cultivating new kinetic energy, and can also give up production factors and resources for new kinetic energy.

"Affected by factors such as the steady improvement of the macro-economy and the improvement of corporate performance, the attitude and determination of some places and enterprises to reduce overcapacity have loosened, and we must have a clear understanding of this." Wang Xianzheng, President of the China Coal Industry Association, called for the resolute elimination of backward production capacity as an inevitable choice for the coal industry to achieve high-quality development.

Resolutely accelerate the pace of transformation and seek innovation dividends.

"If you are always following, you are making progress, and others are also making progress, and it is difficult to catch up with them. If you want to achieve transcendence, you can only rely on breakthrough technologies to obtain innovation dividends." Xu Zhijiang, chairman of Guangzhou Yida Injection Molding Company, lamented that the company can now be in a global leading position in the subdivision of preform injection molding, relying on a series of cutting-edge technologies that no one has.

Among the Fortune 500 companies in 2017, the average operating income of Chinese companies was 11% higher than that of some foreign companies, but the average profit was 30% lower. This reflects that Chinese companies still need to accelerate their climb from the middle and low ends of the value chain to the high end. Xin Guobin, vice minister of the Ministry of Industry and Information Technology, said that to promote the high-quality development of the manufacturing industry, it is necessary to take deepening the reform of the system and mechanism as the "first shot" and strive to create a good development environment; it is necessary to firmly grasp the "bull's nose" of innovation-driven development, focus on key core technology research and results transfer and transformation, and strive to improve innovation capabilities; it is necessary to take supply-side structural reform as a breakthrough to accelerate industrial transformation and upgrading; it is necessary to focus on the "new engine" role of information-driven development and deepen the integrated development of information technology and manufacturing.

To promote the steady and long-term development of the real economy, it is necessary to grasp the dialectics of "breaking" and "establishing", and to find the balance between "stability" and "progress".

"In the future, it is necessary to balance the relationship between economic development and the three major battles." Pan Jiancheng gave an example, saying that in the next step, we must not only resolutely fight the battle against pollution, but also grasp the rhythm, intensity and accuracy of policy implementation, and avoid being too simplistic in "one size fits all" and causing "accidental injuries" to some industries.

"The central government has proposed to better combine preventing and resolving financial risks with serving the real economy, which is also very realistic and targeted." Pan Jiancheng believes that the next step is to deleverage and resolve financial risks, but we should not be timid and aggravate the financing difficulties of enterprises. "Otherwise, if the real economy is not well managed, the risks will increase, creating a vicious cycle."

"The stable growth in the first half of the year proves that China's economic resilience is increasing, laying a solid foundation for healthy development in the future. We have the confidence and conditions to cope with difficulties and challenges." Pan Jiancheng said. (Liu Zhiqiang)

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