MNI China Business Sentiment Survey: Chinese Business Sentiment Ends 2016 On A 28-Month High - Firms Report Rising Funding Costs Despite Easier Access To Credit

Executives at China’s largest corporations ended 2016 on an upbeat note with overall confidence rising to the highest level since August 2014 in December. The pickup in headline sentiment suggests companies remain cautiously optimistic heading into 2017, according to the latest MNI China Business Sentiment Survey.

The MNI China Business Sentiment Indicator rose for the second consecutive month to 55.9 in December from 53.1 in November. Accompanying the rise in current conditions, the Future Expectations Indicator increased 5.7% in December to 57.7. This is the highest outturn since September this year. There were, however, mixed movements among the key activity components of the survey. Since the start of Q4 demand and output have been on an upward trend, driving the increase in sentiment among executives. Production rose further in December, rising 0.9 points to 58.9 - the highest level since September 2015. Although New Orders scaled back slightly, it held on to virtually all the increase witnessed in November. Firms’ expectations of the coming quarter, however, expanded at a slower rate.  

The Availability of Credit Indicator edged further into expansion in December but did not translate into lower funding costs. The Interest Rate Paid Indicator increased 6.3% to 49.0 from 46.1 in November, marking the second consecutive monthly rise. December’s outturn was the 18th month of contraction but the indicator now stands at a one-and-a-half-year high and just one point shy of 50.0. On the currency side, firms continued to report that the exchange rate was having a positive impact on their business, though the proportion of those who felt so declined. The Effect of the Yuan Exchange Indicator eased to 52.5 in December from 54.1 in November.

In a further sign of increasing demand, Prices Received picked up noticeably in December, with the indicator at 48.4, up from 47.2 in November. Despite remaining at a relatively low level, the hike in Prices Received is an indication that CPI inflation may continue to push higher in the near term. Meanwhile, Input Prices remained high at 59.2, broadly unchanged from the previous month. The upturn in our input cost gauge seen in recent months provides further evidence that on the back of rising commodity prices, producer price inflationary pressures will continue to build in the coming months.

“Overall, December’s survey signals a positive end to a choppy year for the Chinese business environment. Broadly consistent with more upbeat official data on the real economy, our survey points to sustained growth momentum going into 2017. Business conditions improved soundly during December, with output continuing to gain pace and new orders holding up fairly well. But we should not get too carried away as the country still has plenty of economic problems to deal with. While the authorities managed to alleviate hard landing concerns, China’s currency and financial stability is in doubt. As such, challenges in 2017 remain present.”, said Andy Wu, Senior Economist of MNI Indicators