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Chinese business sentiment edges higher in April

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Chinese business sentiment edges higher in April

But improved current conditions masks plunge in expectations.

The assessment of business conditions among executives at China's largest companies nudged back over the breakeven 50 line in April, as gains in new orders and output drove confidence higher and into expansion territory, according to the latest MNI China Business Sentiment Survey.

The marginal improvement in most current measures confirms the modest recovery in economic conditions so far in 2016, although the survey also revealed that firms have serious concerns about its sustainability, with expectations for the future deteriorating sharply to the lowest in the history of the series.

Expectations for overall business conditions fell to the lowest level since the series started in March 2007.

The MNI China Business Sentiment Indicator rose by 1.2% to 50.5 in April from 49.9 in March. Service sector companies were less optimistic about business conditions over the month, although sentiment remained above the 50 breakeven level, while an improvement in sentiment among firms in the manufacturing sector was insufficient to break through the neutral threshold.

Alongside the increase in overall business sentiment, key activity indicators also pointed to an improvement during the month. There was a significant rise in demand with the New Orders Indicator increasing by 8.3% on the month while Production rose 0.9% to 53.8. Moreover, the Employment Indicator increased sharply to the highest since December 2011.

Offsetting these positive effects, firms reported a slight deterioration in credit conditions during April with the Availability of Credit Indicator declining to 49.9 from 50.3 in March.

Also, given the still slow and uncertain recovery of the economy, expectations for overall business conditions fell to the lowest level since the series started in March 2007. A 16.3% fall from March's reading of 54.1 saw expectations decline to 45.3 in April, slipping below the breakeven 50 level for the first time in the series' history.

"On the whole the April survey was a little bit more promising, although not unanimously so. On the positive side the MNI China Business Sentiment Indicator increased into expansionary territory as new orders picked up significantly. There was also a sharp jump in the employment component, with an increasing number of firms reporting that they needed more workers. Against this, the survey results show that companies turned pessimistic about the coming three months which suggests the recovery of the Chinese economy is unlikely to be smooth," said Philip Uglow, Chief Economist of MNI Indicators.



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