Grant Thornton: business confidence on profitability and investment intention increase in mainland China

According to the latest Grant Thornton International Business Report 2016 (IBR), businesses in mainland China picked up the confidence on self-development in the 1st quarter. Business confidence on revenue and profitability rise compared with last quarter. In the meantime, expectations on businesses investment increased, indicating stronger willingness for business expansion.

Business confidence picked up as economy stabilizes

The economicdata recently suggests that China economy tends to stabilize. Although mainland businesses’ optimism [1](27%)on economy did not further increase over last quarter, they now have a stronger confidence on self-development. The IBR reveals that businesses’ confidence on increase of revenue (25%) and profitability (22%) over the next 12 months all rise, up by 4 and 10 percentage points respectively. Meanwhile, it shows 3% of the Chinese businesses expect to see rise in product price, 9% of the businesses plan to increase the employment, with all indicators up by 3% and 2% percentage points over last quarter.

At the same time, businesses’ concern on future development eases. Among all the factors that limit business development, the percentage of businesses concern over shortage of finance is 20%, decreases from 27% last quarter; the percentage of businesses concern over shortage of orders reduces to 33% compared to 41% last quarter;and the percentage of businesses concern over shortage of skilled workers is down to 28% from 36% last quarter. With the moderated worries and improved confidence, unlike previous cautious strategy, Chinese businesses show more interest in investment now. According to the survey, more Chinese businesses plan toinvest in new building (12%) and R&D (30%) in the next 12 months, , which increase8% and 10% compared with last quarter respectively, suggesting a new round of business expansion.

Xu Hua,CEO of Grant Thornton China, says: “China economy tends to stabilize and business confidence further recovers despite unstable factors globally. Companies would have more opportunities in markets under Chinese government’s support for economic transformation, such as supply-sidestructural reforms. Andthe full implementation of VAT reform will further lighten businesses’burden. We believe that with further economic stability, Chinese businesses will see a stronger momentum in business development.”

Optimism decreases globally

Many fundamentals in the global economy remain steady in the 1st quarter. Official figures show that unemployment rates have continued to nudge down in many major economies including the US and Germany, while retail figures also remain strong across Europe and North America. However, the Grant Thornton IBR reveals that global business’ outlook for the country’s economy over next 12 months is not so optimistic.

The survey reveals that global business optimism fell to net 26% in Q1, the lowest in the past 3 years. The trend is evident across the globe, including the G7 (down 7 pp to 28%), EU (down 4 pp to 34%), North America (down 6 pp to 40%), Latin America (down 16 pp to 2%) and Asia Pacific (down 10 pp to 21%).

Optimism among businesses continues to fall in the US at 46%, impacting the sentiment in neighbours Canada (down 41 pp) and Mexico (down 3pp) compared to last quarter.Furthermore, UK (73% to 44%) falls largely.

Xu Hua says, “Despite the relatively stable global economy, businesses feel pressures due to risk of Brexit,uncertainty over the US presidential election, volatility in financial markets and the fall in oil prices. Although there is a risk of the economic downturn, it also presents long term opportunities for businesses. The most dynamic and successful firms will minimize the impact of these external factors, and continue to invest for thelong term development. With investment now, businesses will be ahead of time and win the market when the economy turns better.”

[1] IBR uses net figures which show the percentage optimistic/expecting an increase less the percentage pessimistic/expecting a decrease