Press Conference EMO MILANO 2015_China Machine Tool Industry Association

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Press Conference EMO MILANO 2015

Publication date ：2015-10-08 00:00:00 Source：cmtba

Press Conference

EMO MILANO 2015

China Machine Tool & Tool Builders’ Association

Ladies and gentlemen,

Good morning!

First of all, please allow me, on behalf of China Machine Tool & Tool Builders' Association, to express a warm welcome and heartfelt thanks to guests and friends from all walks of life attending today's press conference!

In today's press conference, we will introduce the following aspects: China's economy, China's machine tool consumer market and the China CNC Machine Tool Fair 2016 (Abbreviated as CCMT2016) to you.

1. China's economy

China is the world's second largest economy, and its economic aggregate has been more than USD10 trillion since 2014. Especially after the global financial crisis in 2008, the Chinese government implemented a massive economic stimulus plan (RMB4trillion) to expand domestic demand, so as to stimulate China's economy quickly out of the crisis, and to maintain high- speed growth. It has to be pointed out that China's domestic demand growth, motivated by China's economic stimulus plan, objectively strongly supported the global economy to avoid a deeper recession in the world's major economies as well. The contribution to global economic growth was more than 50%, and even after obvious slowdown of China's economic growth in 2013, China's contribution to global economic growth still reached nearly 30%.

In view of China's increasing influence on the global economy, the change of China's economy is getting more and more attention from the whole world.

Data Sources：National Bureau of Statistics of the People’s Republic of China

Data Sources：National Bureau of Statistics of the People’s Republic of China, www.caixin.com

Figure 1, figure 2, and figure3 show the changes of several China's economic indicators, closely related to China's machine tool consumer market in recent years. It can be seen that since 2012, China's economy has entered the middle high-speed growth phase from the long period of high-speed growth presenting an overall downward trend.

In the first half of this year, China's economy further slowed down, and the GDP growth fell to 7%. Especially, the stock market fell since mid-June, the reform of quotation mechanism of foreign exchange parity for RMB & U.S. dollar and the corresponding devaluation of the RMB since August caused a widespread concern in the world about China's economy, which impacted the global capital market a great fluctuation for a time.

How to understand the current situation of China's economy and how to judge the future of China's economy have become one of the focus of attention and controversy in the world economic communities.

We believe that we must understand and judge China's economy in a comprehensive, rational and objective manner. From this point of view, we mainly have the following understanding of China's economy:

- The downward pressure on China's economy is indeed strong, and also with many difficulties, but China's economy still maintains at a reasonable operating range;

- The problem of China's economy has derived from the process of reform and adjustment, so it is a problem in the process of progress and a temporary one.

- A strategic vision is needed to observe China's economy as President Xi Jinping recently stated to "look at whether the direction is right or not, whether the driving force is strong or not and whether the potential is abundant or not".

To illustrate the above comprehension, I'd like to give you the following groups of data:

Data Sources：National Bureau of Statistics of the People’s Republic of China

Figure 4 is the situation of China's employment rate and household income since last year. As seen in the figure, although the economy further slowed down in the first half of this year, the employment rate remained stable. In the first half of this year, the actual increase in employment was 7.18 million people, which is 72% of the annual target. It can also be seen from the figure, although the growth rate of disposal income per capita shows a downward trend, at the end of the second quarter this year, the data is still up to 9%, continuing to be higher than the GDP growth rate (7%) in the same period. Ensuring employment and income growth are the basic starting point and foothold of economic development. Therefore, it is one of the bottom lines of macro adjustment and control of China's economy. Despite a further slowdown in the GDP growth, the good performance of the employment and income growth have provided enough support for China's comprehensive economic reform and economic structural adjustment.

Data Sources：National Bureau of Statistics of the People’s Republic of China

Please look at another group of data. Figure 5 is the contribution of investment, consumption and exports to the GDP growth in 10 years. It can be seen that before 2008 China's economic growth was jointly pulled by "three-in-hand" for investment, consumption and export and their contribution to the GDP growth basically maintained balance; in 2009, due to the global financial crisis and the effect of China's massive stimulus plan, the economic growth driving force experienced serious structural imbalance. The contribution of investment to economic growth reached a record 87.6%! While the contribution of exports to economic growth has reached a record of minus 37.4%! Since 2010, China's economic growth was in fact pulled by "two-horse-carriages" of investment and consumption, due to influences of multiple factors that the global market demand dropped significantly and China's export competitiveness weakened and etc....We've particularly noted that consumption has replaced investment becoming the first driving force for economic growth in China since 2011. In the first half of this year, the number has reached 60%! This is not the case for a long time, while this situation is the main pursuant goal of China's economic structural adjustment, which is to achieve the economic growth model mainly relying on consumption drive.

It is not difficult to draw a conclusion that despite the slowdown in the growth rate brought by China's active economic structural adjustment to a certain degree, but it has triggered the gradual optimization of the economic structure. In other words, we use economic growth slow down as the price for the long-term sustainable and healthy development of the economy in return. This is not only significant for the future of China's economy, but also will have a positive impact on the global economy.

When it comes to China's economy, we have to give you a brief introduction to the change of China's stock market and foreign exchange market, because this is the main cause of common concern about China's economy.

Data Sources：China Securities Regulatory Commission

First, the stock market. During March to June this year, the Shanghai Composite Index rose up to 70%, and the stock market bubble accumulated rapidly. Figure 6 is the change of Shanghai Composite Index in two and three quarters. The figure shows that since mid-June, the stock market had experienced three adjustments. The first two rounds of adjustments did not cause international influence, but in late August, the third round of adjustments had a global impact. The Chinese government took effective measures to provide liquidity to the market through various channels to prevent the occurrence of systemic financial risks. To early September, the adjustment of stock market has been generally in place entering the stage of self-repair and self-adjustment.

Now come to the foreign exchange market. On August 11th, China's central bank announced the reform of quotation mechanism of the foreign exchange parity of the RMB and U.S. dollar, which started a new round of exchange rate reform in china. In that time, the RMB exchange rate faced a great depreciation pressure, but now it has gradually stabilized. On September 17th, the State Administration of Foreign Exchange announced the pressure of the depreciation of the RMB has basically released, which marked the new reform had come to an end. Figure 7 is the changes of middle rate of RMB against U.S. dollar exchange rate in the third quarter of this year, which also shows the RMB exchange rate against the euro.

Data Sources：State Administration of Foreign Exchange

Chinese Premier Li Keqiang last month attended the Davos forum held in Dalian, China in the summer. On one hand, he does not deny the difficulties currently China's economy is facing; on the other hand, he is also full of confidence on China's economy. He pointed out "despite the stronger economic downward pressure in recent years, China did not issue excessive currency, and did not carry out large-scale stimulus. This left space for the next step of adjustment." "There are still a lot of tools in the toolbox of China's innovative macro-control policies." "Once the economy has the possibility to slip out of a reasonable range, we have enough ability to deal with it," "China's economy will not appear to be 'hard landing’; this is not an empty talk."

2. China machine tool consumer market

(1) Market overall situation

Data Sources：CMTBA

Figure 9：The Main Direction of the Upgrade of Demand Structure

Data Sources：CMTBA

Under the influence of the global economic rebalancing, especially of China's economic structural adjustment and growth slowdown, China's machine tool consumer market has changed significantly in recent years. The basic characteristics of the changes are in the two aspects. On one hand, the total market demand is significantly reduced, of which the demand for low-end homogeneous products and heavy duty machine tool products declined particularly prominent. Figure 8 reflects the above trend. On the other hand, the market demand structure shows a rapid upgrade. The main direction of the upgrade is the automatic complete set, customization and general shift to the upgrade (Figure 9). Among them, the market demand growth for automatic complete sets of equipment is particularly significant, which origins not only from the users need of upgrade of China's machine tool, but also from a significant changes of the rapid increase in China's labor costs and labor supply and demand relation. Figure 10 shows the numerical control rate of output of China's machine tool manufacturing in recent years (calculated by output value). It can be seen in the 4 years when the total demand quantity of China's machine tool consumer market has been significantly reduced, the numerical control rate of China's machine tool manufacturing output is in rapid optimization. Compared with 2011, the data increased by 11.1 percentage points in 2014, which from one side reflects the characteristic of general shift to upgrade in China's machine tool market.

On the basic characteristics of changes of China's machine tool consumer market, we want to do the following explanation: first, because the most significant market demand decline is the low -end homogeneity products and most of which are manufactured by enterprises at home. Therefore, China's machine tool manufacturing industry has experienced a greater impact and influence. Relatively speaking, the influence on imported machine tools is weaker. Especially due to the upgrade of the market demand structure, the comparative advantage of imported machine tools has been correspondingly expanded. Second, although the total demand of China's machine tool consumer market is declining, China is still the world's largest machine tool consumer, the largest machine tool importer and the major force of international trade. In 2014 China's total machine tool consumption reached USD31.8 billion, accounting for 42.1% of total global consumption. The machine tool imports reached USD10.8 billion, accounting for 29.8% of the world total. The total amount of machine tool trade reached USD14.2 billion, accounting for 18.1% of total global trade. Finally, China's machine tool consumer market demand decline is a periodical phenomenon. In a sense, this is a reasonable price having to be paid for the implementation of the economic structure adjustment. With the continuous deepening of China's economic structure adjustment, the long-term growth potential of China's machine tool consumer market will be effectively released. Although China's economic aggregate has been very large, China is still a developing country. China's new model of industrialization, informatization, urbanization and agricultural modernization still has a long way to go, which means that China's machine tool consumer market has also a long-term growth potential and tremendous growth space.

In summary, we have reasons to be full of confidence on the long-term development of China's machine tool consumer market.

(2) Import of machine tools

Figure 11 is the year-on-year change situation of import growth of China's metalworking machine tool in recent years. It can be seen that machine tool import growth reached the peak 59.8% in 2010. It continuously declined in the next 3 years. It was down to 26% in 2013. Last year, the growth rate rebounded to 7.6% It returned to negative growth (-15.9%) again in Jan.-July period this year.