Both new investments and recruitment plans are up significantly but concerns over a shortage of skilled labour, high raw material costs and competition are reported among northern European companies operating in China. Despite the Chinese government’s measures to cool down the economy, senior managers of northern European subsidiaries foresee a continued improvement in business prospects in the Chinese market. Earlier optimism has been transformed into action and more than half the companies surveyed as part of SEB’s China Financial Index plan further investments in the next six months, with another third planning significant investments. Nine out of 10 companies plan further recruitment, with 20% of them gearing up for a significant addition in staff numbers.
The Chinese economy continues to outperform all other major markets growing 10.3% in 2010. However, exceptionally high credit growth, record high property prices and increasing inflation have led the Chinese government to take measures to cool down the economy. In the past four months banks have been asked to slow down new lending, interest rates have been raised three times and new rules have been implemented in the property market. The view of northern European companies, however, does not reflect the government’s concerns – more than 80% have a positive or very positive view on market prospects in the coming six months and two out of three companies anticipate increased profits.
“We see in our own business how client flows and demand for financing is increasing significantly right now. The need for working capital financing is up and companies also need financing for larger investments than previously,” said Fredrik Hähnel, general manager of SEB in Shanghai.
The survey was carried out at the beginning of March and shows that northern European companies are more bullish in China than other companies right now.
“Although we know that our clients are expanding significantly right now, we are actually a bit surprised by the overwhelming optimism among northern European companies as several important indicators point to a slight slow down in economic activity. The Purchasing Manager’s Index, for example, fell in February and we know that loan growth from Chinese banks has decelerated,” continued Hähnel. “The biggest concerns, now that companies are expanding so much, are the challenge of attracting and retaining skilled staff, higher raw material costs and fierce competition in the Chinese market.”
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