ZhangXiangMu: Under the new normal, innovation and upgrading will become the only way out for enterprises

　　I. How to view the current economic situation, especially the operating trend of the machinery industry

　　From the perspective of the entire machinery industry, 2014 saw a decline in domestic demand and an increase in exports, while 2015 saw a decline in both exports and domestic demand, resulting in a significant drop in corporate profits. The machine tool industry and the entire machinery industry are in a similar situation, but the machine tool industry is facing even greater difficulties. It is important to emphasize that the problems we face are not cyclical; the situation will not improve in a few years. We must abandon the illusion of waiting for the next economic boom. The central government estimates that the international economy will undergo further adjustments in the next few years, and the downward trend of the domestic economy has not yet bottomed out. 2016 may be more difficult than 2015. Therefore, we must be prepared for a long and arduous struggle, adhering to a protracted war strategically and fighting annihilation battles tactically.

　　Looking more specifically at the equipment manufacturing industry, the situation is even less optimistic due to its close relationship with fixed asset investment. Relevant analyses suggest that the growth of most fixed asset investments, including infrastructure, has reached its ceiling. Another round of large-scale economic stimulus is neither advisable nor feasible. The machine tool industry is even more closely related to fixed asset investment. It is impossible to return to the situation of 2010 and 2011. We must be prepared for the long term and consider the difficulties more seriously.

　　The contradictions and problems we face are currently manifested in four declines and one rise: a decline in economic growth rate, a decline in industrial product factory prices, a decline in corporate profits, a decline in the growth rate of fiscal revenue, and a rise in the probability of risks. The central government judges that the economic situation in 2016 will be weak recovery. Therefore, the economic situation we face is extremely severe and difficult. Once again, I emphasize that everyone must be prepared.

　　II. How should the machine tool industry operate under the new normal?

　　The problems we face are accumulated from the long period of high-speed growth and development in the past. Although these problems need to be solved through development, it certainly cannot be solved by relying on the original traditional concepts, ideas, and models of development. Traditional development methods cannot solve the current problems.

　　Although the problems faced by the equipment manufacturing industry are not as serious as those in the raw materials industry, overcapacity is still very prominent. Relatively speaking, many sub-sectors in the equipment manufacturing industry do not have absolute overcapacity; it is more of structural overcapacity. Taking the machine tool industry as an example, the serious overcapacity mainly refers to ordinary machine tools.

　　The Central Economic Work Conference proposed five major tasks for structural reforms in 2016, one of which is to reduce overcapacity. This is mainly divided into three categories: First, for several industries with high production capacity, the government will introduce specific policies and measures; second, for individual industries, the task of dealing with "zombie enterprises" is proposed; third, for most industries, it is to guide the implementation of mergers and acquisitions. Under this situation, our machine tool industry must work hard to deal with overcapacity. It is foreseeable that in the future, the better an industry does in dealing with excess capacity, the better its situation will be.

　　1. Government Actions

　　Currently, the central government is responding to the situation by moderately expanding domestic demand and accelerating supply-side reforms, exerting efforts from both the demand side and the supply side, but paying more attention to supply-side structural reforms. It aims to achieve a high-level supply-demand balance from a low-level supply-demand balance and has introduced five policy pillars: stable macroeconomic policies, accurate industrial policies, flexible microeconomic policies, practical reform policies, and social policies to provide a safety net. In 2016, the government will also moderately increase the fiscal deficit, mainly to support tax cuts and fee reductions, and it has also proposed to study reducing the value-added tax rate for the manufacturing industry.

　　Entrusted by the State Council, the Ministry of Industry and Information Technology is formulating a three-year action plan for 11 industries, including automobiles and machinery, to stabilize growth, adjust structure, transform and upgrade, and reduce costs and increase efficiency. In 2016, the central government will also implement three special actions in terms of stabilizing growth, adjusting structure, and promoting transformation: a special action to improve the supply of consumer goods; a special action to reduce costs and increase efficiency; and a special action to upgrade the manufacturing industry. Among them, the special action to upgrade the manufacturing industry mainly relies on "Made in China 2025," and the special action to reduce costs and increase efficiency also has many specific contents, including reducing corporate financial costs and institutional costs, clearing taxes and fees for enterprises, and financial institutions giving preferential treatment to the real economy.

　　As an industry management department, we sincerely hope and have been working hard to include the machinery industry, especially the machine tool industry, in the scope of support from the government's new policies.

　　2. The Way Out for Enterprises

　　As we all know, machine tools are the mother machines of the equipment manufacturing industry. However, at present, enterprises mainly rely on imports for advanced production equipment, and domestically produced machine tool equipment is even more difficult to enter fields such as aviation, aerospace, automobiles, electronics, and integrated circuits. To build a strong manufacturing country, we must not only look at whether the products we produce reach world-class standards, but also whether the equipment used to produce these products is domestically produced. Therefore, the key to a strong manufacturing country is whether machine tool equipment can be self-sufficient. If machine tools still rely on imports, then the connotation of a strong manufacturing country is insufficient.

　　In the future economic development process, the total demand will not increase much, especially after the implementation of intelligent manufacturing, enterprises will not need so much production capacity after a significant increase in efficiency. If enterprises cannot improve their own technology, products, and competitiveness and still remain in the original development model, it will be difficult to achieve transformation and upgrading. Therefore, enterprises must innovate and have decent products. They must not remain in the low-level, low-quality, and low-reliability low-end stage. Under the new normal, innovation will be the only way for enterprises.