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Chinese business sentiment up as rate cuts take effect

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Chinese business sentiment up as rate cuts take effect

Companies report easier access to credit.

Following the increased pace of monetary policy easing since November, Chinese firms gave one of the clearest signs yet that business conditions are beginning to stabilise, according to economic information provider MNI.

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, increased 7.6% on the month in June to 53.5, building on May's gain. Confidence now stands at the highest since the start of the year, before the reality of softer economic growth took its toll on our panel of large Chinese companies. Firms remained optimistic about the future, with elevated expectations of further easing contributing to a 7.4% rise in the Future Expectations Indicator.

"Activity is running below trend and disinflationary pressures continue suggesting that economic growth will remain relatively subdued in the near future." 

Credit conditions improved notably in June, following the three rate cuts and 150 basis points worth of cuts to the reserve ratio requirement since the final quarter of last year. Spurred by the most recent rate cut in May, firms reported that their access to credit was the highest since August 2014 and a higher proportion of companies reported that the cost of loans had decreased between May and June.

Measures of output and demand recovered further in June, but are still well off the levels recorded at the end of last year, reflecting the continued lull in activity. Firms also cut back their forecasts for production and new orders following a significant upward revision in the month before.

Disinflationary pressures were again at the fore in June as Input Prices fell further to the lowest since August 2009, following successive plunges since January. In contrast the Prices Received Indicator, a measure of output prices, increased for the second consecutive month. While it continues to indicate that prices are declining, the rate of decline has decreased, easing the price squeeze companies have felt.

"The results of the latest MNI China Business Sentiment Survey provide some encouragement that the pro-active policies taken by the Chinese authorities are starting to have an impact. Still, activity is running below trend and disinflationary pressures continue suggesting that economic growth will remain relatively subdued in the near future," said Philip Uglow, Chief Economist of MNI Indicators.

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