Grant Thornton: China business remain buoyant about growth prospects with focus on self-development

According to the Grant Thornton International Business Report (IBR), after stable development in Q1, the business optimism in mainland China kept climbing in Q2, from 34% to 46[1] IBR uses net figures which show the percentageoptimistic/expecting an increase less the percentage pessimistic/expecting adecrease

, showing growing confidence in business development. Meanwhile, other expectations over next 12 months, including revenue (39%), profitability (32%), selling prices (24%), and employment (17%) also rose slightly compared with those in last quarter. However, business leaders are cautious about investment, with more focus on their own business development to achieve growth.

Focus on self-development, worries grow on financing

The report reveals that the investment expectation in new building and in plant/machinery for the next 12 months both decreased to 11% and 17% respectively, from 23% and 31% in Q1. Research and development expectation also fell to 31% from 34% in last quarter. It can be seen that although business optimism and development expectation went upward, business leaders are conservative about investment. Meanwhile, when asked about the growth initiatives, business leaders prefer to incentivizing productivity improvements (55%) and improving sales effectiveness (36%) to boost the current business, than  expanding business domestically (30%) or developing new products (24%).

47% and 29% of businesses cited rising energy cost and shortage of financing as constraints on their growth prospects respectively, rising from 35% and 23% in last quarter. Besides, 31% of businesses worry about the shortage of orders, up from 29% in Q1. But after the “job-hopping season” in the first quarter, only 32% of businesses worry about shortage of skilled workers, falling from 38% in last quarter. The team of employees tends to be stable.

Xu Hua, CEO of Grant Thornton China, says: “After a steady growth in Q1, businesses’ confidence on business development further strengthens. However, influenced by the slowdown of economic growth, businesses still have some worries about economic uncertainty, which limits their further expansion. Regarding to the widely concern with financing of small and medium-sized enterprises, the amendment to PRC Commercial Bank Law (draft), passed this June would be good news. The amendment removes the provision that requires banks to have a loan-to-deposit ratio of no higher than 75 percent, which will be conducive to small and medium-sized enterprises to reduce financing cost and foster business development.”

Global business optimism rises

Global business optimism climbed 12 percentage points to net 45% in Q2 with many of the world's largest economies posting significant improvements. Optimism in the United States rose 11pp to 54%, and in Japan from -17% to 8%. In Europe, business confidence rose for the fourth straight quarter to 58%, the highest in the past five years. Business optimism in Germany increased from 59% in Q1 to 92%, ranking first in the world.

Xu Hua says: “Despite some uncertainty over the future of Greece in the euro zone and some political uncertainty globally, business leaders are increasingly confident in the economic outlook. With so many large economies reporting increased confidence, the global economy is clearly headed in the right direction. Business growth feeds on confidence - the confidence to make an acquisition, to expand abroad, to hire new people - and we'll be watching closely to see if this momentum can be maintained in the face of some relatively severe geopolitical headwinds.”

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[1] IBR uses net figures whichshow the percentage optimistic/expecting an increase less the percentagepessimistic/expecting a decrease