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Businesses face confidence crisis

By Wang Bo (China Daily)
Updated: 2009-01-09 07:41

Business confidence among Chinese enterprises is expected to remain weak untill 2010, according to a survey conducted by UK-based L.E.K. Consulting, indicating that the global financial turmoil is taking a firmer grip than previously expected on the Chinese economy.

The survey, based on interviews with over 30 business owners and executives of Chinese enterprises, showed that the majority of respondents view the current commercial environment as "unfavorable" or "strongly unfavorable" and their confidence is to fall further in the coming months.

Special Coverage: Coping with Financial Crisis Related readings:  Consumer confidence 'hits 6-year low'  China economic hubs face tough times amid crisis  Shanghai property boom fading away  Less hiring expected in first quarter of '09

Over 56 percent of the respondents surveyed felt that the negative impact of the global economic downturn will persist for one to two years while 44 percent thought that the effects would last for a longer time.

Not surprisingly, exporters continued to maintain a grim outlook for their businesses. "In addition to factors like dwindling overseas demand and yuan appreciation, China's strict control on credit and financing to small-sized exporters along with rising manufacturing costs have dampened sentiment," said Carol Wingard, managing director, L.E.K. China.

The escalating financial crisis has already made an impact on the country in November 2008, with foreign trade volumes dropping 9 percent to $189.9 billion, the first monthly decline in seven years. Exports fell nearly 2.2 percent year-on-year, while imports plunged 17.9 percent.

"As the prognosis of the global economic situation remains unclear, domestic companies typically expect pressures on their businesses to continue or even increase in the coming six months, indicating a flagging business confidence for 2009," the report said.

Companies have become more cautious in spending and investment planning. More than 50 percent of the respondents said they would invest less than originally planned.

China's GDP growth has slowed to 9 percent in the third quarter of 2008, well below the 11.9 percent growth for 2007. Many enterprises have not only stopped investing but also started to cut expenditure and run down their inventories. Although the government has introduced the 4 trillion yuan stimulus package to prop up the economy, many economists still feel that this may not be enough to boost business confidence.

"China's economy is no longer decoupled from rest of the world. The impact from the global crisis on many Chinese businesses is tremendous and not expected to wane in 2009," Wingard said.

Chinese enterprises with sharper competitive edge and stronger financial clout are taking the lead in market consolidation to further strengthen their position, the report said.

"In spite of the gloom, we are now seeing leading Chinese companies with solid financials looking for opportunities to enhance their position in the domestic market and to buy overseas strategic assets at a good value," Wingard said.