Business confidence improved for the fourth consecutive month in August to the highest for nearly three years, in spite of growing pessimism that the recent improvement in growth, following the government’s supportive measures, could be short lived.
The MNI China Business Indicator rose to 59.0 in August from 58.2 in July, the highest reading since October 2011. The latest increase in sentiment was supported by gains in Production and New Orders, while Order Backlogs and Inventories remained at elevated levels.
While latest official economic data for July was mixed, our forward looking business survey data is consistent with the view that the recovery seen in Q2 has been maintained into Q3, underpinned by the supportive measures put in place earlier this year by the Chinese authorities.
After July‘s lull, the Production Indicator increased to 65.5 in August from 58.4 in July, the highest reading since September 2011. The pick-up puts Production significantly above the average seen since the survey started in April 2007 and well above the level seen at the beginning of the year.
The New Orders Indicator increased for the fourth consecutive month in August to the highest since January 2012. We have little doubt that the actions taken by the authorities to fine-tune growth earlier in the year have had an impact on the data in recent months. Having fallen into contraction in April, New Orders are now more than 13 points higher than the start of the year with some of the largest companies in China well placed to see changes in economic policy quickly.
While official data on inflation has remained relatively tame, our Input Prices Indicator shows that firms’ costs have increased noticeably since mid-2013 with the indicator standing at the highest for more than two years, although prices charged by firms have
slipped back into contraction.
“A fourth consecutive increase in overall business sentiment along with an acceleration in output and orders shows that our panel of listed companies are seeing directly the benefits of the government’s finetuning measures. Latest official economic numbers have painted a mixed picture, although our survey data suggests one shouldn’t write off the Chinese authorities’ ability to achieve their economic goals,” Philip Uglow, Chief Economist of MNI Indicators said.
