Chinese Business Sentiment Falls to Five-Month Low

Following a pickup in conditions towards the end of the third quarter, business sentiment among China’s largest companies pulled back in October. Chinese firms also re-assessed the outlook for the future, according to the latest MNI China Business Sentiment Survey.

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, scaled back notably in October, falling 6.5% to 52.2 from 55.8 in September and leaving confidence at the lowest level since May.

The decline was led by lower confidence among manufacturing companies. There was an even sharper decline in firms’ short-term outlook, with the Future Expectations Indicator falling to 52.0 in October from 58.0 in September, the lowest since April 2016.

The latest setback in overall sentiment outstripped smaller declines in Production and New Orders, suggesting that other factors, particularly continued uncertainty driven by sluggish external demand, may have played a major role. Production slipped back to the lowest level since February, although the outlook for output remained reasonably firm.

Moreover, there was a significant pullback in demand with the New Orders Indicator decreasing by 4.4% on the month. Firms were also less upbeat about the future level of New Orders in the coming quarter.

More positively, in spite of the POBC’s shift towards a slightly less expansionary policy stance, there were still indications that monetary conditions remained relatively loose and that liquidity continued to flow through to businesses. The Availability of Credit Indicator increased slightly in October.

Firms also reported that the interest rates they paid were lower compared with the previous month, but fewer companies expected lower credit costs over the next three months.

Disinflationary pressures on the output side were slightly more evident in October, with the Prices Received Indicator falling further into contraction. This came alongside a rise in prices of raw materials, with upward pressure on the Input Prices Indicator coming from both the manufacturing and service sectors.

“Following some resilience towards the end of the third quarter, the pullback in the MNI China Business Sentiment Indicator marked a disappointing start to the final quarter of the year,” says Andy Wu, Senior Economist of MNI Indicators.

“Companies are now less optimistic about future business conditions than current conditions, a warning that the macro climate will likely remain uncertain in the near term. Overall, the October survey confirms that the business backdrop remains volatile and that further policy support, particularly from the fiscal side, is needed.” 

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