Grant Thornton: China mainland businesses are optimistic on economic prospect in 2016

New research from Grant Thornton’s International Business Report (IBR) reveals that, China mainland business optimism over the next 12 months increased by 10 percentage points over last quarter to net 36% in Q4-2015, reflecting growing confidence on the new year’s economy. In the meantime, it also has an influential increase compared with the same period last year (25%), which demonstrates an increased expectation when looking into 2016 after a stable economic development in 2015.

Pressure from shortage of orders and skilled workers

Despite optimism on the economic outlook in 2016, businesses are conservative for self-development expectations.  Among the factors constraining businesses’ development in the next 12 months, businesses cited shortage of orders(41%) and lack of skilled workers(36%) as the most important ones, with percentage exceeding  other factors such as economic uncertainty (33%) and shortage of finance (27%). Besides, the businesses are cautious about the expansion in the new year. Rather than growth initiatives such as merging with or acquiring another business, expanding business overseas and accessing new sources of funding, businesses prefer initiatives including incentivising productivity improvements, improving and increasing investment in marketing which will strengthen performance of current businesses.

Xu Hua, CEO of Grant Thornton China, says: “the uncertainty of international economic environment puts pressure on export businesses with possible shortage of orders. Nevertheless, business expectation is still positive as the domestic economy tends to be more stable. The recent favourable news  including RMB joining the currency basket of international monetary fund's SDRs, the free trade zones between China and South Korea, and China and Australia taking effect, and the launch of stock issued registration system reform, will create more opportunities for business development. We should seize the opportunity to achieve further growth.”

Steady optimism of global businesses

Globally, business optimism heading into 2016 stands at net 36%- only slightly down from Q3 2015 and just above the 35% recorded a year ago, showing a stable confidence towards 2016. Net 38% of EU businesses are optimistic about their economy over the next 12 months, exactly the same as in Q3 and Q1. The stable optimism of the EU businesses shows a sign of economic stability since the financial crisis. Overall business optimism in APAC has increased from 20% to 31% in Q4. Optimism in Latin America (11% to 18% in Q4) is also at its highest level in a year, driven largely by a remarkable surge of optimism in Argentina. Meanwhile the US has seen optimism fall from 74% to 50% in Q4, the biggest fall of any of the 36 countries surveyed. The export expectation of US firms has dropped from 26% to 11%.

Xu Hua says: “EU businesses kept confidence on the outlook of long term development of the region despite risks posed by the migrant crisis, terrorism and a possible referendum on the UK’s European Union membership. Strong confidence could be found especially in businesses from UK, Ireland and Spain. However, the US businesses show decreased optimism. The US Federal Reserve raised interest rates in the final weeks of 2015 to boost the economy. The stronger dollar will pose threat to export businesses and it may increase the appetite of the US consumer for cheaper imports.”

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