The "Excavator Index" reflects how much of the economic reality.

China's economy cannot overly rely on the energy and infrastructure industries; we need new ways of economic growth. Those more innovative emerging industries are the future of China's economy.

Recently, a hot term has emerged globally - the "Excavator Index", which reflects the vitality of infrastructure construction, mining, and other fields, and thus assesses the macroeconomic situation of a country or region. According to reports, in June 2014, the average operating time of large excavators in China was 76.03 hours, in June 2015 it was 72.9 hours, in June 2016 it was 88.7 hours, and in June 2017 it reached 113.35 hours, a year-on-year increase of 28%. Some analysts point out that the "Excavator Index" reflects a warming trend in the Chinese economy.

How much economic reality does the "Excavator Index" reflect?

The surge in the domestic "Excavator Index" can be roughly summarized into three main reasons: 1. Increased demand for energy industries such as coal; 2. Domestic infrastructure growth rate maintaining a relatively high rate of about 16%-18%; 3. Although currently in a period of macro-control, downstream real estate investment remains at a high level.

Investment is one of the most important engines driving economic growth and is one of the "three drivers" of economic growth. The "Excavator Index" shows that a considerable portion of the investment is directed towards rural infrastructure and transportation infrastructure between urban clusters. Such investment can be understood as the foundation for urban advancement and deep integration of urban and rural areas, in line with the general laws of economic development and the inherent needs of regional economic integration.

However, it should also be noted that another part of the index reflected by the "Excavator Index", namely the real estate, coal, and engineering machinery sectors, belongs to strong cyclical industries, which are easily affected by various factors such as policies and market environments, leading to fluctuations.

Taking the real estate industry as an example, due to the delayed effect of policies, the impact of macro-control on the upstream and downstream of real estate will continue to expand in the future. Research institutions believe that the growth rate of real estate investment is expected to gradually decline in the third and fourth quarters.

The coal industry experienced three stages of price "rebound - crazy growth - cooling" in 2016, and prices slowly warmed up in the first half of this year. However, it should also be noted that the task of reducing coal production capacity remains daunting. During the 13th Five-Year Plan period, the proportion of coal consumption needs to be reduced to below 58%, and about 800 million tons of excess and backward production capacity need to be resolved and eliminated each year. Therefore, the coal industry has limited support for the "Excavator Index".

China's economy is undergoing a transition from an investment-driven model to an internal consumption-driven model. The key task currently is to break through the bottleneck of traditional growth models, comprehensively adjust backward industries, and achieve real quality improvement and efficiency enhancement. The "Excavator Index" reflects both the warming of China's infrastructure construction and indicates that investment in fields such as coal mining and real estate remains at a high level, and care must be taken not to repeat the cyclical fluctuations of the past.

The "Excavator Index" is a good economic forecasting indicator, but we should not be overly optimistic just because this index is rising.

In recent years, the structural adjustment of the coal industry and the implementation of the "one-vote veto" system for local infrastructure environmental protection indicate that we cannot overly rely on infrastructure to drive economic growth, avoiding a focus on quantity over quality, which has gradually become a consensus from society to the government.

The increase in infrastructure investment and input indicated by the "Excavator Index" has brought about economic growth. However, China's economy cannot overly rely on the energy and infrastructure industries; we need new ways of economic growth. Those more innovative emerging industries are the future of China's economy.