China business sentiment plummets

China business conditions have deteriorated to their worst level since the beginning of 2009, according to the latest MNI China Business Sentiment Survey.

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, fell for the fourth consecutive month in April – to 48.8, from 52.2 in March. That’s the first time since the financial crisis that business confidence has fallen below 50 and comes despite a recent round of policy loosening implemented by the PBOC.

On the brighter side, firms remained relatively more upbeat about the future, with the Future Expectations Indicator holding well above the current measure, giving some hope the situation may improve, MNI Indicators said.

New Orders and Production have both lost momentum in 2015, and in spite of a pick-up in March, were significantly weaker in April. Both measures are now at the lowest levels in a year, before the government began embarking on a piecemeal stimulus regime through increased infrastructure spending and gradual monetary policy loosening.

Deflationary pressures continued in April, with Input Prices falling further and standing at the lowest since July 2013, consolidating the plunge in March which wiped out nearly two years of gradual increases in one hit.

Over the last year, firms had commented that the aggregate price of their inputs has steadily expanded, primarily due to increased labour costs and the burden from regulations outweighing falls in global prices for commodities.

Prices Received remained near February’s six-year low in April, unmoved after increasing marginally in March. Companies were slightly more hawkish in their expectations for future inflation, although the low absolute level of the indicator suggests deflationary pressures are likely to continue in the near future.

“Our panel were unambiguously downbeat in April, painting a sombre outlook for growth in the short-term. Action taken by the authorities to date will take time to come through, although the continued downturn in sentiment suggests that further support will be required,” said Philip Uglow, Chief economist of MNI Indicators.

“Balancing the twin goals of maintaining growth close to seven per cent and pushing ahead with reforms will prove challenging. The good news to date is that so far there are few signs the authorities are abandoning the reform agenda.”

MNI Indicators, part of Deutsche Borse Group, offers unique macro-economic data and insight to businesses and the investment community. MNI China Business Sentiment is a monthly poll of Chinese business executives at companies listed on either the Shanghai or Shenzhen stock exchanges, a mix of manufacturing and service sector firms.

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