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Chinese firms gloomier about economic prospects for next 12 months

Publication Date : 31-10-2012

 

Concerns over inflation, labour costs weigh on business owners

Chinese businesses' views about various economic issues became significantly more pessimistic in the third quarter, according to a survey from the international accounting firm Grant Thornton LLP last Thursday.

The gloomier outlook was the result of the current sluggish global economy and a slowdown in economic growth in China, the Grant Thornton International Business Report suggested.

It said 11 per cent of the businesses surveyed expressed optimism about the 12 months going out from the end of the third quarter of this year, down from the 33 per cent that had expressed similar sentiments about the 12 months following the second quarter.

"The sustained downturn in the global economy and the rise of international trade protectionism have resulted in a gloomier business prospect for China," said Ed Nusbaum, CEO of Grant Thornton International.

Every year, the Grant Thornton International Business Report collects opinions about economic issues from 12,000 businesses operating in 41 economies. Those include 100 businesses in the Chinese mainland, one-third of which are either owned by the State or belong to the public sector, a third of which are privately owned and a third of which are foreign-funded.

The International Monetary Fund, in its latest World Economic Outlook report, also expressed greater pessimism about the global economy, saying growth will be slower in the next two years.

About 68 per cent of the Chinese businesses polled in Grant Thornton's survey forecast the global economy would be in a recession during the 12 months from the end of the third quarter and only 16 per cent said they have plans to expand overseas.

As businesses lose confidence in the global economy's prospects, their expansion plans have become more conservative.

According to the survey, the percentage of Chinese businesses that plan to invest in new factories and machines decreased by 12 points and those that plan to invest in research and development by 9 points.

Business leaders have also been keeping their costs under tighter control. Of the businesses surveyed, 61 per cent said they expect employees' salaries to rise in the next 12 months - a drop of 11 percentage points.

More than half of the Chinese businesses surveyed also expressed concerns about the effects inflation might have on the economy, the survey said.

Although businesses have become less optimistic about economic prospects, they are still confident in themselves.

The survey said that 84 per cent of the Chinese businesses surveyed expect to see their operating revenues increase in the 12 months from the end of the third quarter, a figure up by 10 percentage points from the second quarter.

Furthermore, 82 per cent of the businesses said they expect to make larger profits in the 12 months from the third quarter, a number up 21 points from the second quarter.

"It suggests that Chinese businesses are still optimistic over their corporate development with [there being] relatively stable economic growth in China," said Nusbaum.

Their greater optimism about profits, Nusbaum said, is a result of a sales increase that has been buoyed by domestic consumption.

Meanwhile, only 8 per cent of the businesses surveyed throughout the world expressed optimism about the prospects for global business, a figure down from 23 per cent from the previous quarter.

Among Latin American businesses, 64 per cent expressed optimism, and the figure for businesses in the G7 countries - France, Germany, Italy, Japan, United Kingdom, United States and Canada - as well as North America, also showed a significant decline, suggesting that the economic outlook in advanced economies is grim.

As for industries, 32 per cent of the businesses surveyed in the clean-tech industry expressed optimism. And service providers, including providers of business, educational and social services, also showed themselves to be fairly optimistic.

 

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