2016 will be a difficult year. The future of the LED display industry depends on self-cultivation of enterprises.

As domestic GDP growth fell below 7% in the third quarter of 2015, it was officially announced that China's economy has entered a "new normal" of low growth. Similarly, the domestic LED display industry has experienced rapid development for more than 10 years, especially after the investment "blowout" in recent years. It has now entered a stable and mature period, and the entire industry has entered an era of meager profits. The direct result is that the growth rate of corporate profits has slowed down. Most LED companies, including listed companies, have begun to see a decline in profits. Some LED companies have even gone bankrupt and reorganized due to a break in the capital chain.

In the eyes of everyone, 2015 is already a difficult year. However, there is another opinion today that 2016 will be the first year that China’s macro economy continues to bottom out, and it will also be the most difficult year in the near future. Various macroeconomic indicators will fall further, and the microscopic operating mechanism will undergo further variation. What is going on? Let’s take a look!

2016 is the year when China’s economy continues to hit the bottom. On the one hand, many macroeconomic indicators will experience further declines; on the other hand, many microeconomic indicators may experience comprehensive variations, causing unexpected changes in the depth and duration of the economic bottom.

It must be clear that the bottom of this round of China’s economy is the result of the combined force of multiple cyclical forces. Will the world economy experience a second dip in 2016? Will real estate investment successfully reverse in the second quarter of next year? Can China's debt restructuring alleviate the debt pressure of enterprises? Can China's stock adjustment be launched on a large scale? Will incremental expansion be enough to make up for the inequality? The gap caused by reversal and traditional stock adjustment? Can the repositioning of macroeconomic policies effectively change the pessimistic expectations of micro entities and effectively resolve the full manifestation of the "deflation-debt effect"? Has the incentive-compatible dynamic mechanism of a new round of major reforms and major adjustments been effectively constructed? These factors will together determine the bottom of this round of China's economic downturn and the depth and duration of the bottom downturn.

1. In 2016, it will be difficult for the world economy to escape from the downturn in 2015.

First, the normalization of U.S. monetary policy, the further decline in China's import demand, the continued decline of international commodities, and the emergence of deep-seated problems caused by the early mismatch of global manufacturing have all determined that the turmoil in emerging economies in 2016 will exceed the various fluctuations faced by emerging economies in the past. Second, unexpected geopolitical impacts may lead to the failure of Europe's economic recovery. Third, the contraction of global investment and trade has not ended. The world macroeconomy not only lacks unified macroeconomic policy coordination, but also lacks a growth foundation for economic rebound and fundamental support for medium-term prosperity. Fourth, the law of transmission of world crises determines that the transmission of this round of crisis from finance to entities and from the center to the periphery has not ended. The balance sheet adjustment of emerging economies has just begun.

Therefore, the world economy is not only facing an overall sustained downturn, but there is also the possibility of a "second dip". This determines that China will not only face the continued impact of the contraction of world trade, but also the impact of changes in global capital. It is difficult for China's economy to successfully reverse the cycle before the world economy hits bottom.

2. China’s stock adjustment has not yet been substantially carried out. Excess production capacity in industries with overcapacity has not been fully withdrawn. Various types of zombie companies that serve as capital black holes are still prevalent. Highly indebted state-owned enterprises are still the focus of various capital investments due to the snowball effect... Therefore, the supply-side stock adjustment policy fully launched in 2016 will determine the bottom of the stock operation and the timing of the rebound. If the bottom of the stock economy does not appear, the bottom of the overall economy will not come.

3. Excessive inventory and excessive regional differentiation have caused China’s real estate cycle adjustment to be longer than before, and there is a risk of premature recovery. The expectation of a comprehensive real estate recovery in 2016 is highly uncertain, but the upcoming stock real estate inventory policy will significantly reduce this uncertainty and realize the reversal of real estate investment growth in advance. Without a reversal in the growth rate of real estate investment, it will be difficult to achieve short-term economic stabilization.

4. Incremental adjustments have been continuously carried out in recent years and have achieved obvious results. However, the cultivation of new industries, new business formats and new driving forces requires a long cycle, and it is difficult to completely fill the gap in the transformation of traditional forces in the near future. The incremental adjustments that continued to increase in 2016 faced the constraints of government fiscal expenditures on the one hand, and the bubble risk caused by excessive support on the other.

5. The debt cycle is the most direct force determining this round of China’s economic cycle. The major stock market crash from June to July 2015 accelerated the rise in China's debt ratio. The full restart of China's IPOs in 2016, the accelerated replacement of local debt, and the divestiture and disposal of non-performing assets will directly determine the status of China's debt cycle. If the debt dilemma is not broken and the money-attracting black hole is not eliminated, it will be difficult for China’s macroeconomic medium-to-high-speed benign operating mechanism to emerge.

6. The lack of an incentive-compatible dynamic mechanism for a new round of major reforms and major adjustments is the deep-seated core reason for the continued economic downturn. Whether the repositioning of the major reforms and major adjustments in 2016 can create a new round of incentive-compatible dynamic mechanism is the key to China's macroeconomic ability to bottom out and rebound.

Based on some of the above qualitative judgments, the China Macroeconomic Analysis and Forecasting Model of Renmin University of China - CMAFM model is used to set the main macroeconomic policy assumptions:

(1)201 The actual fiscal budget deficits for the five years and 2016 were 1.6 trillion yuan and 2.1 trillion yuan respectively;

(2) The average exchange rates between RMB and US dollar in 2015 and 2016 were 6.21:1 and 6.50:1 respectively.

China’s macroeconomic situation is forecasted by year in 2015 and 2016. The forecast results are shown in Table 1.

1. In the second half of 2015, under the influence of various "stabilizing growth" policies, the macroeconomic trend of rapid decline in the first half of the year was changed, and it gradually stabilized in the fourth quarter. However, due to continued weakness in external demand and the weakening of policy stimulus effects, the foundation for economic stabilization is not solid, and the overall macroeconomic situation remains weak. The actual GDP growth rate for the whole year is expected to be 6.9%, down 0.4 percentage points from 2014, basically completing the government's economic growth target. However, since the GDP deflator was -0.5%, the nominal GDP growth rate was only 6.4%, and the nominal industrial added value growth rate was only 0.2%, which were 1.8 percentage points and 4.7 percentage points lower than in 2014 respectively. The overall economy is in greater difficulty than actual growth rates suggest.

2. From a supply perspective, under the continued impact of the industrial depression, the secondary industry has further declined, while the tertiary industry has bucked the trend and has seen relatively strong growth. The growth rate of the added value of the secondary industry is expected to be 5.9% in 2015, a decrease of 1.4 percentage points from 2014. The growth rate of the tertiary industry is 8.2%, an increase of 0.4 percentage points from 2014. The primary industry remains relatively stable under the influence of various agricultural policies, with a growth rate of added value of 4.0%. It is worth noting that: first, the current price added value growth (or nominal growth) of the secondary industry in 2015 was only 0.6%, and the main industrial income and profits have entered a "negative growth period"; second, the core role of the increase in the actual growth rate of the tertiary industry lies in the rapid growth of the financial industry. After excluding the financial industry, the growth rate of the service industry only increased by 6.7%, the actual GDP growth rate excluding finance was only 6%, and the nominal GDP growth rate excluding finance was only 5.5%.

3. From the perspective of total demand, the three major demands are all showing a weak trend, among which the decline in investment and export growth is more obvious. First, the growth rate of fixed asset investment in the whole society continues to decline due to the weakness of manufacturing and real estate investment. It is estimated to be only 10% for the whole year, down 5.7 percentage points from 2014. Second, under the influence of the contraction of global trade and the decline of domestic investment, the growth rates of both exports and imports have declined significantly. It is estimated that the export growth rate in 2015 will be -1.3% and the import growth rate will be -12.0%. This asymmetric decline resulted in a trade surplus of 3,606.9 billion yuan (US$580.8 billion) for the whole of 2015, an increase of 53.6% from 2014, and the proportion of GDP increased from 3.7% in 2014 to 5.3% in 2015. The expansion of this kind of "retreat surplus" indicates that China's internal inequality has further worsened. Third, consumption remains relatively stable. It is estimated that total retail sales in 2015 will increase by 10.6% year-on-year. Compared with 2014, the nominal growth rate has dropped by 1.4 percentage points, but the actual growth rate after excluding price factors has only dropped by 0.8 percentage points.

4. Under the influence of multiple factors such as supply and demand imbalance and imported deflation, the price level dropped significantly in 2015. The full-year CPI growth rate is expected to be 1.4%, down 0.6 percentage points from 2014 and far below the policy target of 3.0%. It is noteworthy that: 1) The GDP deflator in 2015 was negative, with the year-on-year growth rate being -0.5%, 1.3 percentage points lower than in 2014; 2) Deflation in the industrial sector has further worsened and is likely to spread. According to the trend, the PPI for the whole year of 2015 was -5.2%, down 3.3 percentage points from 2014; 3) Service prices and core CPI fell slightly, down 0.5 and 0.1 percentage points respectively from 2014.

5. The prudent monetary policy has been further continued. However, due to the pressure of endogenous contraction of funds, the gap between the money supply and the growth rate of social financing has expanded significantly, and the penetration of liquidity into the real economy has further declined. The growth rate of M2 is expected to remain at 13.3%, and the total social financing will be 15,192.6 billion yuan, with a growth rate of -7.7%. The situation of "wide money and tight financing" has further deteriorated.

6. Due to the real estate recession, industrial depression, and sharp decline in import and export, China’s government revenue is expected to grow by -2.2% in 2015, and fiscal pressure is rising across the board.

2016 will be the first year that China’s macro-economy continues to hit the bottom, and it will also be the most difficult year in the near future. Various macroeconomic indicators will fall further, and the microscopic operating mechanism will undergo further variation. This will bring opportunities for China to carry out substantial stock adjustments, comprehensive supply-side reforms and greater demand expansion, thereby laying the foundation for the reversal of the economic cycle in 2017 and the normalization of medium-to-high-speed economic growth.

1. The actual GDP growth rate in 2016 is expected to be 6.6%, a further decrease of 0.3 percentage points from 2015. However, since the GDP deflator is only -0.1%, the nominal GDP growth rate in 2016 will be 6.5%, an increase of 0.1 percentage points from 2015. Among them, the growth rate of the primary industry was basically the same, the growth rate of the secondary industry was 5.4%, a further 0.5 percentage point lower than in 2015, and the tertiary industry fell slightly, with a growth rate of 8.0%.

2. Fixed asset investment continued to fall in 2016, with a growth rate estimated at 9.6%. However, considering the price effect, the actual growth rate was basically the same as in 2015.

3. Consumption remains stable in 2016, with an estimated growth rate of 10.3%, a slight decline from 2015.

4. With the spread of the world economic crisis, the intensification of turmoil in emerging economies, and the sluggish economic recovery in Europe and Japan, China's external environment will continue to be sluggish in 2016. However, due to base factors, trade growth will rebound throughout the year. The export growth rate in 2016 is expected to be 2.1%, and the import growth rate is 1.1%. The trade surplus was 3,789.2 billion yuan (US$582.9 billion), an increase of 5.1% compared with 2015.

5. With the sluggish global demand, the continuation of the super commodity cycle and various geopolitical influences, the pressure of imported deflation still exists. Combined with the decline in internal demand, the price level will remain relatively depressed in 2016. The CPI is expected to be 1.3%, the negative growth of PPI has narrowed significantly, and the GDP deflator is -0.1%.

6. The financial problems caused by the economic downturn have further worsened. It is expected that in 2016, due to the continued deterioration of fund income, government revenue will only increase by 2.1% year-on-year.

Authors: Liu Yuanchun, Yan Yan, Liu Xiaoguang

Source: National People's Congress "China Macroeconomic Forum"

Event Comments:

After reading the whole news, what do you think, LED entrepreneurs? Are you aware of the crisis in the economic situation? It is undeniable that the overall national situation will have a great impact on the LED industry, but the establishment of the company's own strength is the key to the survival of the company.

We do not deny that due to the increasing downward pressure on the domestic macro economy and the slow recovery from the economic crisis in Europe and the United States, the overall prosperity of the industry is not high. There are also various reports of LED companies closing down or running away, but so what? This can prove that the LED display industry is going Is it the end of the road? On the contrary, this year, we are also seeing more LED display companies actively deploying. Listed companies continue to lay a solid foundation and deepen and expand into new fields. A large number of small and medium-sized LED companies are not to be outdone. They continue to deepen their verticalization in segmented fields and continue to promote the innovation of LED display products and technologies. From the overall perspective of the LED display industry, the LED display industry is still on an upward trend. Therefore, we should maintain confidence in our industry.

Going back to the topic of the economic situation in 2016, even if all predictions come true, will it shake the foundation of LED display companies? In fact, it is not the case. Perhaps the environment does have an impact on the development of LED companies, but it is not all. Even in a harsh market environment, there are still many companies surviving. This is enough to show that the potential of LED display companies is unlimited, and companies with strength in the face of difficulties will survive.

Therefore, no matter what the market environment is in the future, LED display companies must return to the "origin", practice their "internal skills", continuously improve the quality, taste and production efficiency of existing products, and develop new products that meet market demand. Otherwise, even if they are lucky enough to survive this crisis, they will fall in the next crisis.

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