China business confidence soars
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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, a gauge of current business sentiment, China business confidence surged back into expansion, rising 17 per cent to 57.1 in August – a big leap 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, said MNI Indicators in a statement.
“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 per cent to 60.9 in August, the highest reading since the same month a year earlier.
“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.”
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 with MNI Indicators.
MNI China Business Sentiment is a monthly poll of Chinese business executives at companies listed on either the Shanghai or Shenzhen stock exchanges. Companies are a mix of manufacturing and service sector firms.
Questions & Answers
Q.What specifically caused the improvement in business confidence in August?
What specifically caused the improvement in business confidence in August?
The rebound in August seems to have been a normal bounce after a very weak outcome in July, which was attributed more to animal spirits than a real lull in activity. Stabilisation in official data also contributed to increasing sentiment since May.
Q.How did the recent devaluation of the yuan affect business confidence in August?
How did the recent devaluation of the yuan affect business confidence in August?
The yuan's devaluation happened just before the survey ended, so its full impact won't be clear until the September survey. However, most companies in the August survey were already dissatisfied with the exchange rate's effect on their business.
Q.Will the current improvement in business confidence likely continue in the coming months?
Will the current improvement in business confidence likely continue in the coming months?
It is too early to tell if this improvement will be sustained, or if it was a temporary bounce. Companies do expect increased activity to continue over the next three months, and future expectations are high.
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