MNI China Business Sentiment Survey: Chinese Business Sentiment Surges In August - Rise In Orders And Output Drive Confidence To One-Year High

Confidence among executives at China’s largest companies bounced back to a one-year high in August, implying that the fall in July was driven by temporary factors related to stock market volatility, according to the latest MNI China Business Sentiment Survey.
 
The MNI China Business Sentiment Indicator, a gauge of current business sentiment, surged back into expansion, rising 17% to 57.1 in August from 48.8 in July. Discounting last month’s plunge, which looks to have been driven more by animal spirits than a tangible lull in activity, sentiment has been increasing since May alongside the stabilisation in official data. However, it's still too early to tell whether the latest improvement will be sustained over the following months or if it was a normal bounce after a very weak outcome in the month before.
 
Firms also revised up their expectations for the future, with the Future Expectations Indicator up 12.6% to 60.9 in August, the highest reading since the same month a year earlier.
 
Both Production and New Orders picked up strongly in August following a setback in July, leaving both at the highest so far this year. Companies expected increased activity to continue over the next three months, with the Future Expectations Indicators for both measures regaining the ground lost in the previous month.
 
In a further sign of increased demand, both Input Prices and Prices Received rose in August, with the latter jumping just above the 50 breakeven level after 12 months in contraction. The hike in Prices Received is an indication that CPI inflation may continue to push higher over the coming months.
 
The sharp devaluation of the yuan following the PBOC’s introduction of new guidelines for the exchange rate fix came just before the survey period ended and will therefore not be fully captured until the September survey. The August survey showed most companies were dissatisfied with the impact of the exchange rate on their business with the Effect of the Yuan Exchange Rate Indicator dipping below 50 for the first time in five months.
 
“Last month we noted that the impact of the stock market turmoil on business confidence would be difficult to gauge. For now businesses have shrugged it off, with key activity measures in the August survey increasing sharply and the stimulus policies of the authorities seemingly having a significant positive impact”, said Philip Uglow, Chief Economist of MNI Indicators.