SEB's China Financial Index

Rebound for North European companies. Increased demand and higher profit expectations

China's economy bottomed out during the second half of 2012, and an increasing number of indicators now point to improved business conditions. Government-led stimulus packages, relatively loose monetary conditions and positive export figures have contributed to an improved business climate. Half of top managers at North European companies in China now have a positive view on the market and profit expectations in the region. After three consecutive surveys with falling sentiment, SEB's China Financial Index in March increases to 60.8  from 56.1 in September.

The percentage of surveyed companies that see lower customer demand as a main concern has fallen from 70 per cent to just above 40 per cent. Companies have increased expansion plans slightly in China, and two out of three respondents plan further investments. 15 per cent of companies plan significant investments, which is the same number as in September. A bit more than half of the companies plan further recruitment, which is higher than the last survey.

"Optimism among companies has increased since the last survey, and it is evident that order books are looking better than in September. Investment plans are also increasing albeit only marginally, as some manufacturing companies still have overcapacity in China and are awaiting more signs of a robust rebound in the economy. Furthermore, companies did not slow investment plans much last year, despite negative economic signals," says Fredrik Hähnel, Head of SEB in Shanghai and author of the report.

The Chinese economy grew by 7.9 per cent during the fourth quarter 2012 compared to 7.4 per cent for the third quarter. Several indicators in China now point in the direction of a modestly rebounding economy, and full-year growth for 2013 looks to be better than in 2012. During 2013, SEB economists expect China to grow by 8.1 per cent.

Increasingly positive signals in China make North European companies more optimistic about the future in the region. Around half of respondents now have a positive view of the coming six months, whereas the number of companies with a negative view has fallen from one-third to only ten per cent. The remaining forty per cent have a neutral view. Slightly less than half of the companies expect profits to increase, which is an increase from the last survey. Very few companies believe that profits will fall in the coming six months.