A modest recovery in overall business confidence masked a pullback in activity in December, as China’s largest firms continued to grapple with lower demand and an uncertain business environment. Companies did not expect to see a significant improvement in early 2016 either, with the Future Expectations Indicator remaining close to last month’s series low.
The MNI China Business Sentiment Indicator, a gauge of current business sentiment, rose 5.6% to 52.7 in December from 49.9 in November, edging back above the 50 level that separates expansion from contraction. In spite of the bounce back, overall confidence wasn’t able to recover to October’s level. And the slowdown in China this year was confirmed, with the 2015 average falling to 52.2 from 53.9 in 2014 and well below the series average of 58.1.
Real activity measures in the survey continued to decline, losing further ground from the sharp rise in August with both New Orders and Production now sitting below their long-run averages. Monetary policy loosening has had a material impact on Production and New Orders in 2015, although the tendency for the indicators to fall back shortly after any rate cuts suggests that more is required to meaningfully revive demand.
Other areas of the report showed that credit conditions continued to remain relatively loose, although a smaller majority reported that loans were easier to access. Following the IMF’s decision to include the yuan in the Special Drawing Rights basket a greater proportion of respondents said that the exchange rate was helping their business, while companies were roughly evenly split on whether the exchange rate over Q1 2016 will help or hurt their operations.
Commenting on the latest survey, Philip Uglow, Chief Economist of MNI Indicators said, “It has been a choppy year for the Chinese economy with volatility in the MNI China Business Sentiment Indicator at the highest since 2009, while GDP for the year is likely to grow at the slowest pace in 25 years. Still, the relatively modest easing in the MNI China Business Sentiment Indicator over the year as a whole suggests China is undergoing more of a bumpy rather than hard landing.
“While our expectation is that growth over 2016 will likely ease further, continued reforms and a gradual structural shift in the economy away from industrial overcapacity towards greater depth in the service economy will pave the way for more sustainable growth in the long-term.”
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MNI China Business Sentiment Indicator: Chinese Business Sentiment Up Slightly In December - Confidence Range-Bound As Activity Remains Subdued
Date 18/12/2015