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Chinese business sentiment falls back

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Chinese business sentiment falls back

Eased credit not enough to maintain confidence.

The Chinese business environment remains uncertain, according to executives at China's largest firms. Confidence pulled back in November after surging in the month before as a fall in demand outweighed the positives from cheaper credit and a reported improvement in companies' financial positions.

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, fell 10.3% to 49.9 in November from 55.6 in October, slipping below the 50 neutral level for the second time this year.

As has been the case for most of 2015, the move in the overall indicator dwarfed the more subdued moves in key activity measures, indicating that sentiment continues to take its cues from external factors rather than realized demand and output. Still, New Orders and Production also fell by 6.6% and 4.2% respectively in November.

"The latest result confirms that the business backdrop is fragile and further stimulus is warranted."

Although any confidence boost from previous supportive policy announcements appears to have faded, firms continued to report that monetary easing to date is flowing through. Interest Rates Paid fell to the lowest since 2009 while the Availability of Credit Indicator rose further. The expectations measures for both indicators also shifted more towards an easing bias, suggesting that companies expect more policy adjustment by year end.

Furthering the case for more interest rate cuts, disinflationary pressures were once again at the fore in November. Input Prices fell 17.8% to 45.6, matched by a 9.9% drop in Prices Received, which now stands at the lowest since 2008.

In spite of heightened expectations for more stimulus measures among the business community, expectations for the future remain bleak. The Future Expectations Indicator fell 12.3% to 51.2 in November from 58.4 in October, back close to September's series low.

"Currently we're seeing increased volatility in business sentiment brought on by a range of factors, not least the uncertain economic outlook. In spite of the instability in many areas though, business is finding some support in the easier credit environment while new orders and output remain elevated by historical standards. Still, the latest result confirms that the business backdrop is fragile and further stimulus is warranted, particularly given the renewed disinflationary tone struck in November's survey," said Philip Uglow, Chief Economist of MNI Indicators.



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