MNI China Business Sentiment Indicator: Chinese Business Sentiment Ticks Up In May - Firms Report Tighter Credit Availability Despite Rate Cuts

Business confidence picked up slightly in May after falling to the lowest since the beginning of 2009 in April, according to the latest MNI China Business Sentiment Survey.
 
The MNI China Business Sentiment Indicator, a gauge of current business sentiment, improved to 49.7 in May from 48.8 in April. While confidence remained in contractionary territory for the second consecutive month, it was the first month-to-month gain in sentiment since December. This could be a tentative sign that the more pro-active policy stance from the authorities seen since the latter part of 2014 could be starting to have an impact.
 
Firms’ short-term outlook also improved with heightened expectations of further easing contributing to a 3.7% rise in the Future Expectations Indicator. Note that the recent rate cut from the People’s Bank of China came right at the end of our survey period so wouldn’t have been fully reflected in the survey results this month.
 
Measures of output and demand recovered in May, but are still down significantly since the start of the year as activity has weakened. Firms’ optimism for future orders and output increased noticeably and is now back in line with levels seen at the turn of the year.
 
In spite of the improvement in orders, output and overall sentiment, there is still scant evidence from our panel that credit conditions have improved despite the rate cuts seen since November 2014. The Availability of Credit Indicator fell back into contraction in May, with many companies reporting reduced access to credit. Following declines in February and March, firms reported that the interest rates they paid were stable for the second consecutive month.
 
Deflationary pressures were still in evidence in May, with Input Prices falling further and standing at the lowest since July 2013, following the plunge in April and March which wiped out nearly two years of gradual increases. Prices Received remained near a six-year low, broadly unchanged from the previous month. The indicator has remained in contraction for 10 consecutive months, as more firms have reported a decrease in the prices they charge for their goods and services.
 
“Overall business sentiment in China remains weak and disinflationary pressures remain. Still, May was the first increase in the MNI China Business Indicator in five months and data on output and orders also improved a little, a tentative sign of stabilisation following the recent declines,” said Philip Uglow, Chief Economist of MNI Indicators.