Northern European Companies Still Upbeat on China

Nordic and German business leaders continue to stay bullish on China, despite the slowdown in the country’s economic growth, reports Nordic financial services group SEB.

All parameters in SEB’s China Financial Index – business climate, profit expectations, investment plans and recruitment plans – are higher, and the index climbs to 61.4 in March from 58 in September 2013.

Around half of the top managers surveyed expect a positive business climate and higher profits in the coming six months. Only 6% have a negative view while less than half expect business conditions and profits to remain the same. More companies than previously – over a half – plan further investments and recruitments.

The number of companies that see lower customer demand as a main concern continued to fall, to 27% from 38% since the September 2013 survey. Meanwhile, one out of four companies view competition as their largest worry, which is the same as in the last survey. One of five companies now finds lack of competent staff as its biggest headache.

“Companies have gained optimism since the last survey, even if changes are fairly modest,” said Fredrik Hähnel, head of SEB in Shanghai and author of the report. “What surprises me most is that fewer companies now view deteriorating customer demand as their main worry.

“Every parameter in the survey is up, which indicates an improving business climate in China. A key reason our index may move in the opposite direction to other surveys is that we only do it every six months. This means it captures more medium-term sentiment.

“The picture is consistent with what we hear in discussions with clients in China. There is no big change in sentiment but companies are positive. In general, business leaders believe that 2014 will be a better year than 2013, even if for example industrial companies must begin getting used to a lower growth rate than previously.

“More companies are starting to be concerned with cost development in China, as costs continue to increase rapidly. As productivity is not improving at the same pace, China risks losing competiveness over time. As of today, it is very uncommon for companies to set up new manufacturing entirely for exports out of China. The focus is now on the domestic market.”

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