Recently, the price increase of chemical raw materials can be described as vigorous, for example: POM rose 1906 yuan / ton; TDI broke 30,000 yuan; MDI rose 1,500 yuan / ton; dyes rose 77%. Many people lamented that raw materials have gone mad!

Why is the wave of price increases so ferocious? In addition to environmental protection and security surveillance, the trade war between China and the United States, the tension in the Middle East, Trump’s “sudden retreat” and Venezuela’s elections have actually added fuel to the rise of chemical products.

The company stopped production on a large scale, some of its raw materials were severely out of stock, and even money could not be bought, and most companies were forced to stop taking orders. It can be said that at present, the ecological environment of China's real economy is in a state of boiling, and a large number of companies are involved in the crazy whirlpool of rising prices, struggling and hanging.

From a deeper point of view, the tide of price increases is triggered by a series of clearing-type crises and long-term distortions of the price mechanism. Due to the excessive accumulation of contradictions, opaque information, and people’s panic, the prices of manufactured goods have become out of control in a short period of time.

Economic bubble facing liquidation

This surge of price rises is called a sudden inflation, and naturally it is related to the super high volume of M2 in the past few years. In 2008, China’s M2 was 47.5 trillion yuan; in 2017, M2 data was 167.68 trillion yuan.

In the past few years, the government tried to establish a currency pool for the property market and the stock market to lock up the super-currency currency. However, the stock market was crippled by a wave of artificial bull market. The pressure pot of the property market bubble was temporarily covered, resulting in excessive liquidity. A large number of private owners feel that the wealth has doubled, but the price is very low, so they desperately spend money and can earn a lot of money without doing anything. On the one hand, this false prosperity has reduced the number of people who create wealth. On the other hand, a large amount of real wealth has been excessively consumed, which has exacerbated the renminbi's bubble.

The degree of inflation may be far more serious than we thought. The moment when the Tianliang M2 and the property market bubble are liquidated, we will either pierce the bubble or withstand the rigorous test brought by severe inflation.

Environmental pollution is hard to return

In the 30 years since China’s economic reform and opening up, although many foreign experts have pointed out that the economic development at the expense of environmental development is not sustainable, it is not worth the candle. However, in order to develop the economy rapidly and powerfully, we can only turn a blind eye to environmental pollution. The result of this is that The haze that had once affected the British and North Americans once again shrouded the northern land and quickly spread to the periphery.

It is undoubtedly very difficult for the environmental pollution problems accumulated over decades to be solved within a few years, but it must be dealt with as soon as possible, so we have ushered in a round of stricter environmental protection storms.

Since 2016, we have experienced the liquidation crisis brought about by environmental pollution. In 2018, the situation may be even worse. Under the cease-and-run production restrictions and multiplied sewage charges, the raw materials necessary for the chemical, chemical fiber, textile, printing and dyeing industries have soared.

The retaliatory rebound of the long-distorted price mechanism

After the economic stimulus in 2008, China’s private investment and state investment all showed a feverish state. From 2012, serious overcapacity has caused the market price mechanism to begin to distort. During this period, we experienced a continuous decline in the PPI for four years, and it also occurred under the circumstances that the cost of production factors such as labor, factory rent, logistics, etc. have climbed sharply.

Now, with the soaring prices of raw materials, PPI has started to go from negative to positive, but prices appear to have retaliated. Low price life has long been a sight to come, and then it is painful debt repayment.

At the same time, in the past long-term low prices led to unprofitable waste recycling. As no one was willing to work on waste recycling, waste cartons, plastic bottles, scrap iron, etc. were thrown away. Once the exchange rate falls, the cost of imported raw materials rises sharply, which will also affect domestic raw material prices.

What is the crux of the real economy in China?

In the mad tide of rising prices, several small and medium-sized enterprises are unable to bear pressure and are forced to shut down. This also exposes the crisis faced by the Chinese economy. Some people questioned whether the real economy is going to collapse?

For a long time, many small and medium-sized enterprises have basically lived by tax evasion. China’s macro tax burden is as high as 38%, far exceeding that of many emerging market countries, and even surpassing that of the United States, the United Kingdom, and other developed countries. Nowadays, tax evasion is getting more and more difficult. Although the tax burden of enterprises has been reduced, it is still unbearable for some companies.

SMEs also face the problem of financing difficulties. In the past 40 years, 80% of China’s credit resources have flowed to the state-owned sectors that contributed less than 40% of GDP, contributed non-public enterprises with GDP exceeding 60%, and obtained less than 20% of credit resources from mainstream credit institutions. 80% of China's small, medium, and micro enterprises rely on private lending to survive and rely on illegal financial institutions to provide blood for funding.

If we say that the collapse of China's real economy is not due to these emotional conclusions, then what is the real problem?

Take the manufacturing industry as an example. In the past, China's manufacturing industry was able to rise suddenly. The key lies in the low cost of labor costs. As a result, China has chosen the lowest-end processing and manufacturing of the global industrial chain in terms of industrial policy, which is the mode of working for the world. Although this model has succeeded in China’s past successes, it is now the main reason why China’s manufacturing and real economy have become paralyzed and difficult.

All of our systems are prepared for such a model. Under the cycle of demographic dividends, this type of gameplay can survive even if taxes and fees are heavy and financing is difficult. Once the demographic dividend is over, the variety of this model will end. The drawbacks will show up. In other words, the economic model we have adopted in the past has now lost its competitiveness and is even difficult to sustain.

Taking Lenovo as an example, Lenovo’s statements in recent years have not been very good-looking. This is a result that Lenovo’s company, which has invested insufficiently in R&D, will inevitably face. Lenovo used to buy other people's brands in the past, relying on assembling computers for others to live well. In the past, Lenovo had always been a follower of the giants. He seldom ventured into the no man's land. Now, this road has come to an end. It can be said that the decline of Lenovo actually represented the representative companies of China in the era of the past who were withdrawing from the historical stage, and the future belonged to Huawei as a truly R&D enterprise.

Today, the entire country has entered a completely different area from the past. This zone requires more innovation, requires new business models, and requires a new institutional ecology to create new competitiveness.

Although the manufacturing industry faces many crises, we still have to pay attention to the survival and development of the manufacturing industry, because not a country's wealth is not due to manufacturing, including the current United States. When most people are foolish enough to think that the United States does not play in manufacturing, the competitiveness of the US manufacturing industry is still the world's second-best position.

We may wish to think about environmental protection storms, price increases, suspensions of production shutdowns, and closures. When these “labor pains” have passed, will the real economy be fully restored? When a large number of enterprises fail, will it be time for foreign capital to seize and divide the Chinese market?