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Chinese business sentiment weakens further

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Chinese business sentiment weakens further

Future expectations pick up despite subdued activity.

The Chinese business environment wasn't afforded any festive cheer over the Lunar New Year holiday as a pull-back in Production left executives at China's largest companies less optimistic, according to the latest MNI China Business Sentiment Survey.

The MNI China Business Sentiment Indicator, a gauge of current business confidence, slipped 4.6% to 49.9 in February from 52.3 in January. Confidence has declined in consecutive months during the first two months of 2016, and the indicator stands 5.8% below its level recorded a year ago. The fall leaves sentiment below the 50 breakeven line indicating that more companies felt that business conditions had deteriorated over the month compared with those who saw an improvement. Firms were more upbeat about the coming three months though, with the Future Expectations Indicator rising 1% to 53.1.

After picking up in January, activity measures in the survey fell back in February. Production relinquished all and more of January's gain, and fell to the lowest since February 2014 while New Orders declined to the lowest since August 2012. After outperforming the main indicator for much of 2015, both indicators have lost momentum in recent months on the back of weak demand and continued spare capacity in certain sectors. There was a pullback in expectations for activity over the coming three months, with companies particularly concerned about the future level of New Orders, which plunged to the lowest since 2009.

An increase in open market operations and lending activities by the PBOC over the holiday period kept credit conditions loose in February, although firms noted a slight tightening compared with last month's jump. The Availability of Credit Indicator fell to 51.1 in February from 52.2 in January while the Interest Rates Paid Indicator rose to 35.7, meaning that most firms continued to report easier access to credit on better terms.

"The absence of the usual monthly indicators of economic activity make judging the trajectory of the Chinese economy difficult over the Lunar New Year holiday. From a business sentiment standpoint the theme is more of the same; conditions remain subdued as companies weigh a more supportive policy environment with market volatility. The significant fall in activity measures suggests that we're unlikely to see a jump in economic activity over the festive period", said Philip Uglow, Chief Economist of MNI Indicators.

 

 

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