1.1 Business Situation Analysis of Alcohol Manufacturing Industry
1.1.1 Industrial input analysis of alcohol manufacturing industry
The number of enterprises in alcohol manufacturing industry keeps generally stable at more than 2600 of above-scale enterprises across the country. The overall average output of 2015 declined compared with that of 2014 but the output fluctuation of the past two years was strong and of a seasonal trend. Monthly average output of each enterprise from January to April is relatively low which is between 4 to 9 thousand kiloliters. This is related to the market demands as well as the cost control of enterprise operation and management. When it comes to May with the beginning of production peak season the output of each enterprise fluctuates between 12 to 29 thousand kiloliters. The accumulative growth rate of output in alcohol production industry has slowed down. The output growth is facing an anemic trend with the growth rate declining constantly and the output decreasing cyclically.
The total assets and operation capital liquidity rate is an operating input indicator to assess alcohol production industry. It is calculated from operating gross liquidity dividing total assets. From Figure 2 – 2 a gradually declining trend of assets liquidity rate can be observed. It declined from 60. 1% of January,2013 to 57. 7% of March,2013,after which it continued getting lower and floated between 54% and 57%,which indicates that the assets liquidity is to be improved.
1.1.2 Industrial operating capacity analysis of alcohol manufacturing industry
The operating capacity of alcohol manufacturing enterprises is analyzed from two perspectives: main business revenue and industrial total profit. From January,2013 to December,2015, the main business revenue rose rapidly from every May and reached the peak value in every December. The developing trend of total profit is similar. While the main business revenue increases, the proportion of that in total profit is relatively small, indicating the profitability of main business revenue in alcohol production industry is relatively weak. It may be the result of the large and comprehensive,small but complete” scale of this industry. Therefore, some part of the business in alcohol production industry should be outsourced, while the core and main business mode must be enlarged and strengthened to lock the enterprise at the high-end position in the industrial value chain of smiling curve, as well as to highlight its developing advantage in the industry. Only in this way can an enterprise improve its profit and occupy market in a long term, becoming a century-old company and a national brand.
1. 2 Prosperity Indicators for Alcohol Manufacturing Industry
In order to reflect the cyclical change of alcohol industry scientifically and vividly with the assistance of institutions including Ministry of Commerce of the PRC, National Bureau of Statistics of the PRC and China International Electronic Commerce Center ( CIECC ), we obtained large amounts of data indicators on alcohol industry. By applying many physical and mathematical models into analyzing and predicting, we created the leading economic indicator, coincident indicator and lagging index of Chinese alcohol production industry. Relying on these warning indexes, we can direct investment according to current situation, keep the alcohol production industry in a good trend, and lead Chinese alcohol industry into a positive development.
1. 2. 1 Selection of prosperity indicators for alcohol manufacturing industry
Prosperity indicators reflect the developing sequence of an industry. They are classified into three types # leading, coincident and lagging indicators. Leading Economic Indicator is also called Predictive Indicator, which indicates the industry situation and possible business cyclical changes in the future months, providing researchers with market indicators of early signs of interest rate trend changes. Coincident Indicator means that the peak or bottom time of an industry is generally coincident with the overall economy peak or bottom time, which can describe the running track of overall economy and locate its peak or bottom point. It is an important indicator for analyzing the realistic economic situation. The variation time of coincident indicators is generally consistent with general economic situation, so it shows general trend of economic development, and can confirm or deny what leading indicatorpredicted about. Lagging Index refers to the index a few months later than the national economy cyclical fluctuation, including its peak and bottom time. Change of this index type usually lags behind the change of national economy. It helps to confirm whether the economic trend reflected by leading indicators is true or not. Prosperity indicators of alcohol production industry must comprehensively consider the changes in aspects of production, consumption, investment, trade, price, finance, banking, enterprise operating activities, employment, etc. and their effects to each other.
1.2.2 Research on prosperity indicators for alcohol manufacturing industry
When studying on prosperity indicators for alcohol manufacturing industry, first of all, we use base price index to do price index deflate to indicators of value – type alcohol production, obtaining the year-on-year growth rate and making seasonal adjustment. Prosperity indicator groups are selected based on time-difference correlation analysis and Kullback-Leibler divergence analysis as well as other econometric analysis methods. Relevant index, and alternative indicators as well as reference indicators in the lagging phase are needed in time- difference correlation analysis and Kullback-Leibler divergence analysis to distinguish leading, coincident and lagging indicators. Main business cost refers to the cost incurred when enterprise undertaking some main production and operation activities. It can reflect sensitively the economic activity of alcohol production industry. Using it as a base indicator and investigating the relevant index between main business costs and lagging and leading phase of other indicators, we obtain the coincident, leading and lagging indicators reflecting prosperity of alcohol production industry. See in Table 2-1.
In Table 2 – 1 it displays the leading, coincident and lagging prosperity indicator groups of Chinese alcohol industry, as well as their correspondent time-difference correlation index and Kullback-Leibler divergence. It takes use of the data calculation results from January,2013 to December,2015,with main business cost growth rate as base indicator. The Kullback-Leibler divergence result is amplified to 10000 times. All the indexes in the figure except CPI are growth rate sequences. In terms of closeness with base indicator and leading ! lagging) phase, the results of indicators in this figure are close. This method is always, in practice, applied to select large amount of indicators. There are two numbers of lagging months # one is lagging months of time-difference correlation index, the other is that of Kullback-Leibler divergence. When the lagging month is closer to 0,this indicator is closer to the base indicator. For leading indicators, we selected main business revenue growth rate, export delivery value growth rate, PMI, main business taxes and surcharges, gross profit growth rate and interest expense growth rate. Lagging months of these 6 indicators compared with main business cost are more than-3 phases. These indicators are all sensitive to market changes, which can reflect the expansion and contraction of economy very early, and can directly show the demand, sales, and production and operation conditions of alcohol production industry. The fast growth of these typical indicators means strong profit and cash -obtaining ability and excellent operating condition of the whole alcohol production industry. For coincident indicators, we picked liquid assets growth rate, total assets growth rate, main business cost growth rate, sales cost growth rate, management cost growth rate, financial cost growth rate, price index of tobacco, alcohol and appliances and finished product growth rate. Lagging months of these 8 indicators compared with main business cost are within the range of ( – 3,+3 ), reflecting together the production and operation condition of the industry at this phase. They change coincidently along with the enterprise production and operation condition, as well as the market rises and falls, indicating the boom or decline of current alcohol production industry. For lagging indicators, we selected accounts receivable net growth rate, liability growth rate, retail price index of beverage, tobacco and alcohol, value – added tax payable growth rate, PPI ( Producer Price Index) of farm and sideline food processing industry, PPI of alcohol, beverage and refined tea manufacturing industry, purchasing price index of farm and sideline product and inventory growth rate. Lagging months of these 8 indexes compared with main business cost are more than 3 phases. When the industrial economy is in expansion and prosperity, raw material shortage is further increased, resulting in growing of PPI of farm and sideline food processing industry, increasing of capital liquidity and rising of PPI of alcohol production industry. Therefore,these indexes can provide an accurate judgment on the development trend of alcohol production industry.
This report selected 22 indicators in total to analyze the operating condition and development trend of alcohol manufacturing industry, including 6 leading indicators, 8 coincident indicators and 8 lagging indicators, which can help to overall grasp the development trend of alcohol manufacturing industry. Thus, we need to turn multiple indicators into a few ones by PC A ( principal component analysis) to reflect information of the original indicators, as well as to show the relationship between leading, coincident and lagging indicators. When carrying on PCA, we eliminated the influence of seasonal and irregular factors by making seasonal adjustments to indicators.
1. 3 Research Results of Prosperity Index
1.3.1 Cyclical change of leading prosperity index and recovering trend in 2016
In PC A of leading prosperity indicator, contribution rate of the first principal component is 76. 4%,while the accumulated contribution rate of the first and second principal components is 92% . It has been a good reflection of leading comprehensive indicator of Chinese alcohol manufacturing industry. Meanwhile, the importance degrees of each indicators to the leading prosperity index are successively declining in the following order: main business revenue growth rate, main business taxes and surcharges growth rate, gross profit growth rate, export delivery value growth rate, interest expense growth rate and PMI.
From the above indicator structure of leading prosperity indicator figure, it can be observed that the leading prosperity indicator experienced a continuous declining from February to May in 2013, then tended to be steady from June to November, 2013, followed by decreasing in December and hit the bottom in February, 2014. After that, it started to rebound until May,2014,and then dropped in fluctuation and hit bottom again in December, 2014. In 2015, it rose and reached to the peak position in February,then continued to decrease and did not rebound until the end of 2015. Then it appeared to be steady. The overall trend is continuous declining in 2013,fall in fluctuation in 2014,rebound and then decreasing in 2015, and a trend of recovery in 2016. Although the operation pressure of Chinese alcohol production industry is easing, it is critical to seek new market motivations.
1. 3. 2 Continuous fall of coincident prosperity index and fluctuation of prosperity hovering at low level
In PCA of coincident prosperity index, contribution rate of the first principal component is74.9%,while the accumulated contribution rate of the first and second principal components is 94.7%. It has been a good reflection of coincident prosperity indicator of Chinese alcohol production industry. Meanwhile, the importance degrees of each indicator to the coincident prosperity indicator are successively declining in the following order# total assets growth rate, liquid assets growth rate, main business cost growth rate, management cost growth rate, sales cost growth rate, price index of tobacco, alcohol and appliances, finished product growth rate and financial cost growth rate.
We obtained coincident prosperity index from coincident indicators, which gloomily appears to be obviously falling in large fluctuation. But in 2016 there is some sign of recovery. In Figure 2 – 5 it shows the development trend of prosperity fluctuation and turning points of peak and bottom positions. With the increasing pressure of economic downturn in 2013, alcohol production industry ended its fast growth mode, entering the phase of adjustment. Since the sharply fall of alcohol production price stimulated purchase intention, compounded with coming of traditional shopping season, there appeared a short recovery between May and September, 2014. Then, with problems like “ plasticizer scandal” and “ Three Public Consumptions” bans rolling in, alcohol production industry was further worsened. It will take relatively long time for the alcohol industry running in low condition to recover. In 2015 the indicators fell into negative value range for a long period, reflecting the slowdown of Chinese alcohol production industry prosperity. This is truly related to macro policies because the consuming of government and business, which were always the motivation supporting fast growth of alcohol production industry, is now restrained. Moreover,relying too much on Baijiu consumption has resulted in a deformed production – marketing mode of “high price, high end and high productivity” .
1.3.3 Overall positive lagging prosperity index in 2015 and steadily recovering trend in 2016
In PCA of lagging prosperity index, contribution rate of the first principal component is 78. 2%,while the accumulated contribution rate of the first and second principal components is 90. 9% . It has been a good reflection of lagging prosperity index of Chinese alcohol production industry. Meanwhile, the importance degrees of each indicator to the lagging prosperity index are successively declining in the following order: inventory growth rate, purchasing price index of farm and sideline product, PPI of farm and sideline food processing industry, liability growth rate, retail price index of beverage, tobacco and alcohol, net accounts receivables growth rate, PPI of alcohol, beverage and refined tea manufacturing industry, value-added tax payable growth rate.
Figure 2-6 reports the time sequence of lagging prosperity index. It has an obvious feature of lagging change, which is mainly the result of the biggest contribution of inventory growth rate. The rising cost of purchasing price index of farm and sideline product, as an upstream industry, is another important factor influencing alcohol production industry prosperity. This kind of influence has a lagging effect, which has, however, a small difference with prosperity lagging time of leading and coincident indicators. It is because of the operation of ‘Internet +’ business mode: application of big data platform and commodity index platform enables enterprises to obtain market information at a very early time, with which they can reconstruct the original business, producing and service systems, make strategic adjustments so as to drive the channel flattening of alcohol production industry.
1.3.4 Comprehensive prosperity index recovering but staying low overall
Comprehensive prosperity index is obtained from comprehensive leading, coincident and lagging indexes. In Figure 2 – 7 it reports the time sequence of these three indexes as well as comprehensive prosperity index. It shows that their fluctuating features in terms of time are coincident with very small lagging phase. When alcohol production industry is in a good production trend, prosperity indexes should be obvious and have a clear leading ( lagging) effect, while when the industry in depression, the leading ( lagging) effect of prosperity indexes is not obvious. This also reflects the herd behavior of alcohol production industry and that people tend to rush into bullish industry instead of a bearish one. Since producers are unwilling to invest and have weak motivation to expand reproduction, the industry will even get worse when it is in depression. The industrial ability of tracking market prosperity is to be improved.
The trend in the future of comprehensive prosperity index predicted in HoltWinters exponential smoothing method is in Figure 2-8 and Table 2-5,which respectively displays the higher and lower limitation of 80% and 95% prosperity index and predict its future fluctuation: average value of the future 8 months in 2016 is around 0. 18. The range in the figure became wider, indicating that comprehensive prosperity indicator of alcohol production industry is gently entering a new stable stage.
