MNI China Business Sentiment Indicator: Chinese Business Sentiment Improves Further - New Orders and Availability Of Credit Fuel Optimism

Sentiment among executives at China’s largest companies picked up in July as gains in new orders, output and credit availability drove confidence higher, according to the latest edition of the MNI China Business Sentiment Survey. The improvement in most current measures suggests the Chinese economy remains in stabilisation mode.
 
The MNI China Business Sentiment Indicator, a gauge of current business sentiment, rose to 55.5 in July from 54.5 in June, building on June’s gain and leaving confidence at the highest level since October last year. Firms were also more upbeat about the coming three months, with the Future Expectations Indicator increasing to a two-year high, an indication that the Chinese economy may have enough positive momentum to carry it forward for a few more months.
 
Alongside the increase in overall business sentiment, key activity indicators in the survey also improved over the past month. Production picked up noticeably in July, following a slight pullback in June. There was also a significant rise in demand with New Orders increasing by 11.5% on the month to the highest since August 2015. Firms were also more upbeat about the coming quarter with both expectations indicators expanding at a faster rate.
 
The central bank’s efforts to increase liquidity in the financial system are still finding their way to our panel of companies. July saw the Availability of Credit Indicator climb to a six-year high while the Interest Rates Paid Indicator increased 12.7% to 42.7. Despite the sizeable move, it remained well below the 50 breakeven level with not a single company on the panel reporting that the interest rates they paid increased over the month.
 
Offsetting these positive effects, firms continued to reduce their hiring plans with the Employment Indicator declining 1% to a five-month low of 50.1 in July. Additionally, more companies reported that their financial situation deteriorated over the month. The Financial Position Indicator slipped into contraction in July, falling to 49.6 from 51.3 in the previous month.
 
“The results of the latest survey provide some hope that the macro stabilisation measures implemented by the Chinese authorities continue to underpin growth momentum. Dig a little deeper, some of the activity measures are performing better and are significantly up from previous months. While there are heightened risks, we believe the pessimism about China appears to have overplayed and the economic performance in the current quarter will likely continue to hold up reasonably well”, said Andy Wu, Senior Economist of MNI Indicators.