New Business Opportunities Prop up Business Confidence in China.
Business confidence recovered in mainland China in the second quarter of 2014, returning to levels last seen a year ago, according to the largest regular economic survey of finance professionals around the world.
Thirty per cent of respondents reported confidence gains, up from 25% in the first quarter of 2014, while 43% reported a loss of confidence, down from 53%, The latest findings of the Global Economic Conditions Survey organised by ACCA (the Association of Chartered Certified Accountants) and IMA (the Institute of Management Accountants) show.
In Hong Kong, confidence also rose marginally, suggesting that the lows of late 2013 have been mostly overcome, but business performance has become much more volatile. 23% of respondents reported confidence gains, up from 10% previously, while 46% reported a loss of confidence, also up from 36%.
Manos Schizas, senior economic analyst with ACCA said: “The relative buoyance in China was mostly due to greater opportunities for organic growth. In the mainland, readings in this respect were better than at any time in 2013, and in Hong Kong they were better than they’ve been in at least two and a half years. Despite this, access to growth capital tightened throughout the country. The recovery in the mainland is clearly more robust.”
Opportunities for non-organic growth ticked up and a second consecutive quarter of improving cashflow and demand conditions helped keep spirits high. The opposite was true in Hong Kong, where cashflow and demand deteriorated in the second quarter and opportunities for non-organic growth –already very low by global standards – fell sharply.
Marginal business confidence gains stand in contrast to a deteriorating macro-economic outlook throughout the country. In mainland China, this change has been mild: 61% of respondents (down from 62%) believe conditions are getting worse or stagnating, against 35% who believe they are improving or about to do so (down from 38%). But in Hong Kong, the macro outlook has darkened significantly: the share of pessimists among the GECS sample has soared from 35% in early 2014 to 62%. Only 35% (down from 52%) are optimistic.
Finally, respondents’ expectations of government spending in mainland China fell once again in the second quarter of 2014, suggesting that public investment is not on the road to recovery yet. But the overall investment environment appears to be tapering out, and China’s slowdown could soon bottom out into a stable ‘new normal.’
Globally, the economic recovery has once again run out of momentum, according to GECS.
Business confidence fell marginally in Q2 2014, and is becoming increasingly reliant on financial stability. The two bodies believe that this is a sign of mounting risks for the future of the recovery.
Although the change in business confidence between Q1 and Q2 2014 is statistically negligible, this apparent stability is the result of dwindling business opportunities and an improving investment environment cancelling each other out, according to the report’s findings.
The survey shows that there is growing business dynamism around the world, with North America andSouth Asia leading the charge in terms of capital spending, new orders and headcount. Conversely,Africa and the Middle East fared worst, with all three areas either falling or stable.
Overall, most of the world’s confidence boost appears to be coming from North America, as well as a temporary rebound in Central and Eastern Europe, but improvements in these regions were balanced out by receding optimism throughout Asia, Western Europe, Africa and the Middle East. Post-Taper, emerging markets are still underperforming in crucial areas such as access to growth capital, but the gap between them and the more developed markets is now narrowing.
One positive sign for the Asia Pacific region and beyond is that China’s prolonged slowdown is now starting to bottom out, which should be good news for a range of suppliers and commodity producers worldwide.
On a country-by-country basis, it is clear that much of the recovery in business confidence is temporary. For instance, encouraging figures in China and Russia were boosted by the signing of a series of major long-term trade and investment deals, while fieldwork closed before the loss of flight MH17 and its aftermath, which will certainly depress confidence in Central and Eastern Europe in Q3.
Despite relatively good news from the real economy, the survey also revealed that the first half of 2014 had been a very depressing time for major Western banks, and became more so in the second quarter. GECS figures for large financials in the US and Europe suggest that confidence in the sector retreated sharply in anticipation of tougher stress tests, rising interest rates and falling property prices, geopolitical risks and the threat of tougher regulatory enforcement.
Manos Schizas said: “After a year of solid improvement in 2013, it’s clear that 2014 is not going to be anywhere near as benign for the global economy. Many of the sources of good news in 2013 –including large financials and ‘austerity survivors’ such as the UK and Ireland – are turning negative again. The Chinese slowdown, which has been a constant drain on the global recovery, may be coming to an end, but the looming geopolitical risks in Eastern Europe and the Middle East are likely to prove just as damaging in the medium term.”