Xinhua Finance/MNI Oct China Biz Sentiment Survey: New Lows

Xinhua Finance/MNI Oct China Biz Sentiment Survey: New Lows

	Published : Fri, 30 Nov 2007 02:28 By : Agencies Print this Story

BEIJING (XFN-ASIA) - Overall Chinese business conditions remain positive but results for the main indexes in the November Xinhua Finance/MNI China Business Sentiment Survey show conditions deteriorating across the

board.

The growth of new orders has slowed to its lowest level ever, with production and corporate financial positions declining to record lows, as well. Most of the indexes remain in positive territory but indicate that growth has slowed considerably since the booming conditions reflected in the survey earlier this year.

The overall business sentiment index for current conditions stood at 63.85 in November, the lowest result ever in the survey which began in Jaunary 2005. That result was down from 64.58 in October and from 75.67 in November last year. The index was above 80 in the first three months of this year.

The index for new orders fell sharply to 60.36 in November, also its lowest level ever, from 73.39 in the previous month and 71.48 a year ago.

The financial position index fell to the lowest level in survey history at 60.00, down from 63.64 in the previous month and 71.72 for the same month in 2006.

Production indexes also declined to record lows. The index for current production fell to 58.80 from 62.74 in October and from 70.63 a year ago. The index for current production capacity fell to 59.31 from 62.74 in October and from 71.38 a year ago.

'The sharp decline in indicators for new orders and order backlogs appears to be affecting companies' production forecasts as well, which are at their lowest levels in the survey's history,' said Logan Wright, China analyst for Stone and McCarthy Research Associates, a sister company of Market News.

'A combination of cost pressures have been building throughout this year, in the form of higher input prices, higher interest rates, faster yuan appreciation, and declining sales prices; these effects are depressing both corporate financial positions and overall sentiment,' Wright said.

Most of the indexes remain above the 50 break-even level that separates growth from contraction. The higher the index above 50, the stronger sector growth (See accompanying story for more on the survey methodology).

That is not the case for order backlogs, however. For the second month in a row the index for current order backlogs showed contraction at 45.51 vs 44.44 in October and 51.88 a year ago.

The survey results suggest Chinese companies still expect better times ahead, with the indexes showing expectations for conditions in three months outperforming the current indexes in most categories, and with some improving from the previous months' survey.

The index showing expectations for overall business conditions in three months inched up to 67.69 from 67.36 in October while the index for future financial position rose to 68.85 from 68.53.

The index for new orders in three months stood at 64.86 in November, down from 68.55 in October, with the index for expectations of production in three months falling to 62.04 (a record low) from 64.15 in October. The index for future expecations of productive capacity equaled the record low set in September of 63.24, down from 65.09 in October.

Rising input costs appear to continue to be a contributor to the tougher conditions. The index showing current input prices remained relatively high at 75.41 although it was down from October's 78.52.

The index for prices received also declined, hitting 58.66 in November from 61.07 in October.

Company officials pointed to those cost pressures in their comments (officials were invited to provide comments along with their survey responses).

'It is hard for us to convince our customers to accept a price rise although we want to do it,' said an official from a machinery manufacturer.

'Not only raw material costs but also workers' salaries have risen to a large extent,' said an official at an exporter of agricultural products. Like other exporters who sent in comments, he also complained that the rising yuan exchange rate is hitting profits.

An official at a steel manufacturer noted that his new orders were down from the same time last year, 'not only because of the yuan appreciation, but also because of macroeconomic controls taken by government.' Steel is one of the sectors targeted by the government in a number of measures imposed to slow overheating in the economy.

In response to those pressures, combined with raw material costs that are rising faster than the prices his company charges, the steel company official said one measure being taken is a closer look at inventories.

'We are trying to have a more reasonable inventory, which means the smaller, the better, on the basis of meeting demand,' he said.

The index for current inventories rose slightly to 47.42 from 46.08 in October but showed contraction for the fourth time in the last five months, suggesting that companies were trying to keep a minimum of inventories while also slowing production.

The Xinhua Finance/MNI China Business Sentiment Survey was conducted November 13-27 with 130 companies taking part.

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