European firms less optimistic about China
Slower global growth and China’s restrictive monetary policies are making North European companies more cautious about sales and profit expectations in China.
SEB’s latest China financial index, which interviewed senior managers at 50 subsidiaries of large Nordic and German companies in China, saw that while most companies plan further expansion in China, they are now holding back slightly compared to last year.
One-third now say that they are not planning any further investments in the coming six months, up from less than one-fifth in September. 25% of the responding companies still plan significant investments and two-thirds have at least modest investment plans in China.
Six out of 10 companies plan to add new staff – fewer than before project significant additions. Managers' main concerns are lower customer demand followed by fierce competition.
The Chinese economy grew by 9.3% in 2011 and the country continues to outperform all other major markets in the world, according to SEB. Growth has fallen in the last quarter however, and both China's manufacturing index and trade figures have dipped in the last couple of months.
Most data indicates that the country can avoid a hard landing and that China can maintain strong growth in the coming years. In 2012, SEB expects the Chinese economy to grow by 8.7%.
"Sentiment has continued to fall and companies are indicating a lower need for working capital financing which is also a sign of lower economic activity," says Fredrik Hähnel, SEB head in Shanghai.
However, SEB believes there is still cause for optimism. The index results indicate that North European companies continue to expand in China even though the number of companies planning increased investments has decreased.
Hähnel adds: "It is natural that companies get more cautious when the economic outlook is less stable. But on the other hand, many companies do not see any better alternatives than to invest in high-growth markets, and China is still number one there."
Finally, according to the survey, seven out of 10 companies expect the Chinese currency, the yuan, to continue appreciating. Six out of 10 expect falling interest rates and around half of the companies believe their market shares will increase in China.
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