Managers at northern European companies which are operating in China are worried about the impact of slower global growth on business prospects there, as well as effects from China’s relatively restrictive monetary policies, SEB’s latest China Financial Index shows. The index, which measures business confidence in the country, is conducted twice each year based on interviews with senior managers at 50 subsidiaries of major Nordic and German companies in China. The index has fallen to 61 in February from 63.4 in September last year and 70 a year ago.
Most companies plan further expansion in China, but they are now holding back slightly compared to last year. A third now say that they are not planning any further investments in the coming six months, up from less than a fifth in September. Twenty-five percent of the responding companies still plan significant investments and two-thirds have at least modest investment plans in China. Six out of 10 companies plan to add new staff but fewer than before project significant additions. The managers’ main concern is lower customer demand followed by fierce competition.
The Chinese economy grew by 9.3% in 2011 and China continues to outperform all other major markets in the world. Growth has fallen in the last quarters however, and both China’s manufacturing index and trade figures have been down in the last couple of months. Most data indicates that the country can avoid a hard landing and that China can maintain strong growth also in the coming years. In 2012, SEB expects the Chinese economy to grow by 8.7%.
The combination of continued monetary tightening, and increased concern over how the faltering global economy will impact China, means large northern European companies are more cautious in terms of sales and profit expectations in China. Half of the companies have a positive view of market prospects but the number of companies being very positive has now fallen to 5%. Among the companies, 10% are now negative. Only a third of the companies expect increasing profit in the coming six months and 10% expect a fall in profit.
“Sentiment has continued to fall and companies are indicating a lower need for working capital financing which is also a sign of lower economic activity. It should be pointed out, however, that half of the companies still are positive while only one in 10 has a negative view of the business climate,” said Fredrik Hähnel, head of SEB in Shanghai and author of the report.
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