The economy In an effort to cut reliance on exports and investment in favour of domestic consumption, China’s economic growth rate target has been dropped from the 8.0% in place since 2005, to 7.5%. Global activity has slowed sharply as worries grow about the eurozone debt crisis. Inflation sank to a 29-month low in June, allowing the government the scope to introduce measures to stimulate the economy. The People's Bank of China announced a surprise reduction in policy interest rates on 5 July, less than a month after the previous interest rate reduction was announced. The key indicators 1 are highlighted below: • economic output expanded by 7.6% year-on- year in Q2-2012, its slowest rate since early 2009, down from 8.1% in Q1-2012 as a slowdown in exports and the property market weighed on growth • the trade surplus widened to US$31.7bn in June, the largest since January 2009, as exports grew by 11.3% and imports by 6.3% year-on-year • foreign direct investment grew by 0.5% in June compared with 12 months previously, ending six consecutive months of year-on-year falls • the central bank lowered the base one-year lending rate to 6% on 5 July, and the one-year deposit rate to 3% • the CPI measure of inflation dropped to 2.2% in June, down from 3.0% in May. International Business Report 2012 – Economy focus series Focus on: mainland China The business perspective The Grant Thornton International Business Report (IBR) surveys more than 12,000 businesses in 40 economies around the world. This report focuses on businesses in mainland China and their expectations for the next 12 months, as illustrated in figure 1. The IBR survey tells us that businesses in mainland China remain as optimistic about their economy as they were in 2011. However, at 33%, optimism is well down on 2010 levels of 60%. Expectations for employment are down on 2011, and below the BRIC average. A shortage of orders/reduced demand remains the greatest constraint on business growth prospects – at 44% in Q2-2012 this is above the BRIC average and is the highest result since 2009. 1 source: International Monetary Fund, The Economist and Experian.
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The economyIn an effort to cut reliance on exports andinvestment in favour of domestic consumption,China’s economic growth rate target has beendropped from the 8.0% in place since 2005, to 7.5%.Global activity has slowed sharply as worries growabout the eurozone debt crisis. Inflation sank to a29-month low in June, allowing the government thescope to introduce measures to stimulate theeconomy. The People's Bank of China announced asurprise reduction in policy interest rates on 5 July,less than a month after the previous interest ratereduction was announced.
The key indicators1 are highlighted below:• economic output expanded by 7.6% year-on-
year in Q2-2012, its slowest rate since early 2009,down from 8.1% in Q1-2012 as a slowdown inexports and the property market weighed ongrowth
• the trade surplus widened to US$31.7bn in June,the largest since January 2009, as exports grewby 11.3% and imports by 6.3% year-on-year
• foreign direct investment grew by 0.5% in Junecompared with 12 months previously, ending sixconsecutive months of year-on-year falls
• the central bank lowered the base one-yearlending rate to 6% on 5 July, and the one-yeardeposit rate to 3%
• the CPI measure of inflation dropped to 2.2% inJune, down from 3.0% in May.
International Business Report 2012 – Economy focus series
Focus on: mainland China
The business perspectiveThe Grant Thornton International Business Report(IBR) surveys more than 12,000 businesses in 40economies around the world. This report focuses onbusinesses in mainland China and their expectationsfor the next 12 months, as illustrated in figure 1.
The IBR survey tells us that businesses inmainland China remain as optimistic about theireconomy as they were in 2011. However, at 33%,optimism is well down on 2010 levels of 60%.Expectations for employment are down on 2011,and below the BRIC average. A shortage oforders/reduced demand remains the greatestconstraint on business growth prospects – at 44% in Q2-2012 this is above the BRIC average and is the highest result since 2009.
1 source: International Monetary Fund, The Economist and Experian.
The outlookThe economy is forecast to expand by 8.2% in 2012,and to average 8.1% up to 2016. Consumption isexpected to become an increasingly importantcontributor as incomes rise, but investment willremain the key driver of expansion, despite adeceleration of spending on infrastructure. Netexports are expected to detract from growth asdemand from Europe further weakens. Governmentfiscal policy is expected to be expansionary,providing a modest boost to economic growth.
The government will continue to monitor theproperty market. Measures to prevent a housingbubble, include new taxes and regulations to deterresidential property speculation, curbing banklending to property developers and expanding thelow-cost housing programme, began to take effect inthe latter half of 2011. Property taxes introduced inShanghai and Chongqing are now being rolled outin Beijing and Guangzhou.
Demographics are likely to be a negative factorinfluencing growth. The government’s one-childpolicy means that the working-age population willbegin shrinking some time toward the middle of thedecade.
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The results reveal that global business optimism rose marginally in Q2-2012 with net 23% ofbusinesses optimistic2 for their economies over thenext 12 months. Businesses sentiment for the next 12months in mainland China is positive with net 33%of businesses optimistic, up from net 23% in the firstquarter.
The sovereign debt crisis continues to weighheavily on businesses confidence in Europe;business optimism across the eurozone stands at net-5%. However confidence in the BRIC3 economiesremains strongly positive at 41% and confidence inthe United States increased from 46% to 50%, thehighest level recorded since 2005.
Optimism/pessimism• business optimism increased in mainland China
in the second quarter, improving from net 23%to net 33%
• however, confidence remains well below levelsobserved this time last year (43%)
• business sentiment remained unchanged for theBRICs standing at net 41%
• globally, optimism levels have also risen,although it remains below the level seen inmainland China and the BRICs.
International Business Report results
2 the net figure is the proportion of companies reporting they are optimisticless those reporting they are pessimistic.
3 the BRIC economies are Brazil, Russia, India and China
Figure 2: Outlook for the economy over the next 12 months: Q4-2010 to Q2- 2012 Net percentage businesses indicating optimism less those indicating pessimism
employment to grow in the year ahead,significantly lower than expectations in Q1 andslightly lower than expectations in the BRICs
• actual employment growth reported by Chinesebusinesses in Q1 (14%) was significantly lowerthan expected the previous quarter (53%).
Revenue expectations• revenue expectations are marginally lower in Q2
compared to Q1 for businesses in mainlandChina
• net 74% expect to increase revenue compared tonet 79% in Q1
• expectations are in line with Q1 for businesses inthe BRICs and globally, with net 74% in theBRICs and net 52% globally expecting toincrease revenue in the year ahead.
Figure 3: Employment history: Q4-2010 to Q2-2012 Net percentage businesses
70
60
50
40
30
20
10
0
Q4- Q1- Q2- Q3- Q4- Q1- Q2-
2010 2011 2011 2011 2011 2012 2012*
Expected mainland China 52 34 59 33 37 53 24
Expected BRICs 56 38 55 41 41 50 36
Actual mainland China 34 40 33 44 33 14 –
Actual BRICs 34 39 40 45 39 30 –
*Q2 2012 actual data will be documented in Q3 2012Source: Grant Thornton IBR 2012
Figure 4: Revenue expectations: Q4-2010 to Q2-2012Net percentage businesses indicating an increase less those indicating a decrease
Profitability expectations• net 61% of businesses in mainland China expect
to increase profits over the next 12 months• this is down from net 74% in Q2-2011• globally, just 38% of businesses are expecting to
see profits increase in the year ahead.
Constraints• a shortage of orders/reduced demand is cited as
being the greatest constraint on businessexpansion for Chinese businesses (44%), itshighest level since 2009
• the cost of finance is cited by 37% of Chinesebusinesses and 41% of businesses in the BRICeconomies.
Figure 6: Constraints on expansion: Q2-2012Average percentage of businesses rating constraint 4 or 5 on a scale of 1 to 5 where 1 is not a constraint and 5 is a major constraint
Shortage of orders/reduced demand
Cost of finance
Availability of skilled workforce
Regulations/red tape
Shortage of working capital
Shortage of long term finance
ICT infrastructure
Transport infrastructure
Mainland China BRICs
Source: Grant Thornton IBR 2012
4439
3741
3140
2939
2530
2029
2024
1827
Figure 5: Profitability expectations: Q4-2010 to Q2-2012Net percentage businesses indicating an increase less those indicating a decrease
Accessing finance• the majority of Chinese businesses are happy
with the level of support provided by lenders;62% of class lenders as supportive or verysupportive towards their business, comparedwith 72% of BRIC businesses
• moving forward, 11% of Chinese businessesexpect finance to become more accessible, whilst37% expect it to become less accessible.
Growth markets• Chinese businesses have identified local,
domestic markets as their target markets forgrowth (84%)
• despite the slowdown in Europe, 16% ofbusinesses cite the region as a key target marketfor growth, followed by Africa (10%).
Figure 7: Accessing finance: Q2-2012Percentage of businesses
80
70
60
50
40
30
20
10
0
62 72 0 5 11 33 37 25
Supportive Unsupportive More LessLender support Accessibility of finance – next 12 months
Mainland China BRICs
Source: Grant Thornton IBR 2012
Figure 8: Growth markets: Q2-2012Percentage of businesses
Domestic 84
Europe 16
Africa 10
Latin America 9
North America 8
Asia Pacific 7
Other 3
Source: Grant Thornton IBR 2012
The Grant Thornton International Business Report (IBR) is a quarterly survey of 3,000 senior executives in businesses all over the world. Launched in 1992 in nine European countries the report now surveys more than 12,000 business leaders in 40 economies on an annual basis providing insights on the economic and commercial issues affecting the global economy.
In mainland China 400 businesses were surveyed over the past 12 months across all industry sectors. These businesses rangedfrom medium to large in size with total employment between 100 to 1000+ employees. Q2-2012 data are drawn frominterviews conducted in May/June 2012.
To find out more about IBR and to obtain copies of reports and summaries please visit: www.internationalbusinessreport.com.
