China business optimism on economic prospects in the next 12 months shows significant uptick in Q1, rising by 16 percentage points from last quarter, to 38%, suggesting businesses’ growing confidence on China macro economy this year, according to the latest Grant Thornton International Business Report 2014 (IBR). However, businesses are conservative about their own development. A number of indicators including expectations on revenue increase and profitability all suffer a drop.
The research reveals that 29% of China mainland businesses cite the shortage of finance as the most important factor constraining businesses’ expansion, rising by 11 percentage points over last quarter of 18%, reflecting a growing pressure on financing. In the meantime, bank loans remains Chinese businesses’ most preferred financing channel, with 30% of businesses planning to finance through it. Among other channels, only 6% of Chinese businesses plan to raise fund through IPO. The percentage of businesses choosing private equity & venture capital and bond insurance financing channel is 8% and 10% respectively.
At the same time, rising cost constrains China mainland businesses’ development. Regarding to the human cost, 68% of China mainland businesses expect to offer employees a pay rise in the next 12 month and 33% of businesses show concerns on the severe shortage of skilled workers. The energy cost pressure is still not alleviated and the pressure on rising energy cost elevates from 43% of last quarter, to 46%.
Impacted by several factors, despite of confidence on macro economy, China mainland businesses are more conservative in self-development. According to the survey, businesses’ expectations on increases of revenue (31%), profitability (16%), export (4%), product price (17%) and employment (9%) all suffer a drop. The expectation on rising profitability drops by 18 percentage points, showing businesses’ lacking of confidence on self-development.
“Despite of the economy slowdown in Q1, the economic data exceeds market expectation and suggests a continuing optimization on industrial structure," says Xu Hua, CEO of Grant Thornton China. "It is predicted that China economy will keep a stable growth, which boosts businesses’ optimism. However, businesses are cautious about expectation on their self-development in Q1. On the one hand, it is still in early stage of the new year and lots of orders are still under confirmation, which affects businesses’ expectations. On the other hand, businesses are somewhat impacted due to the busy job-hopping season in Q1. When facing financing constraints, more support should be offered to Chinese businesses to expand their funding sources and to empower their business engine.”