MNI Indicators: Chinese Business Sentiment Surges in August

BEIJING, Aug. 20, 2015 /PRNewswire/ -- Confidence among executives at China's largest companies bounced back to a one-year high in August, implying that the fall in July was driven by temporary factors related to stock market volatility, according to the latest MNI China Business Sentiment Survey.

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, surged back into expansion, rising 17% to 57.1 in August from 48.8 in July. Discounting last month's plunge, which looks to have been driven more by animal spirits than a tangible lull in activity, sentiment has been increasing since May alongside the stabilisation in official data. However, it's still too early to tell whether the latest improvement will be sustained over the following months or if it was a normal bounce after a very weak outcome in the month before.

Firms also revised up their expectations for the future, with the Future Expectations Indicator up 12.6% to 60.9 in August, the highest reading since the same month a year earlier.

Both Production and New Orders picked up strongly in August following a setback in July, leaving both at the highest so far this year. Companies expected increased activity to continue over the next three months, with the Future Expectations Indicators for both measures regaining the ground lost in the previous month.

In a further sign of increased demand, both Input Prices and Prices Received rose in August, with the latter jumping just above the 50 breakeven level after 12 months in contraction. The hike in Prices Received is an indication that CPI inflation may continue to push higher over the coming months.

The sharp devaluation of the yuan following the PBOC's introduction of new guidelines for the exchange rate fix came just before the survey period ended and will therefore not be fully captured until the September survey. The August survey showed most companies were dissatisfied with the impact of the exchange rate on their business with the Effect of the Yuan Exchange Rate Indicator dipping below 50 for the first time in five months.

"Last month we noted that the impact of the stock market turmoil on business confidence would be difficult to gauge. For now businesses have shrugged it off, with key activity measures in the August survey increasing sharply and the stimulus policies of the authorities seemingly having a significant positive impact," said Philip Uglow, Chief Economist of MNI Indicators.

Notes to Editors

Please source all information to MNI Indicators.

MNI China Business Sentiment is a monthly poll of Chinese business executives at companies listed on either the Shanghai or Shenzhen stock exchanges.

Companies are a mix of manufacturing and service sector firms.

With over five years of history, the survey tracks and predicts Chinese economic conditions and is an important leading indicator of GDP.

Respondents are asked their opinion on whether a particular business activity has increased, decreased or remained the same compared with the previous month as well as their expectations for three months ahead, e.g. is Production higher/same/lower compared with a month ago?

Diffusion indicators are then calculated by adding the percentage share of positive responses to half the percentage of those respondents reporting no change. An indicator reading above 50 shows expansion, below 50 indicates contraction and a result of 50 means no change.

Data is collected through computer aided telephone interviews (CATI) and around 200 companies are surveyed each month.

Series which show a seasonal pattern are seasonally adjusted using the US Census Bureau's X12 seasonal adjustment program. Seasonal factors are calculated annually.

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