Chosun Ilbo Highlights Professor Gan Jie’s Business Sentiment Index

Gan Jie, Professor of Finance at Cheung Kong Graduate School of Business, releases the Business Sentiment Index (BSI), based on a large-sample survey of more than 2,000 industrial firms in China. BSI measures both current and expected operating conditions, as well as investment plans.

The weekly section of Chosun Ilbo featured Professor Gan’s Q1 BSI report. Chosun Ilbo is considered Korea’s premier national daily and the most influential newspaper in Korea. The report quotes Professor Gan as saying that, despite concerns about the bursting of China’s economic bubble, China has now entered a period of rebound, and the possibility of a hard landing has reduced significantly.

Prof. Gan’s study can be summarized as follows:

• After a year of contraction in 2014, China’s industrial economy stabilized in Q1 2015. The Business Sentiment Index stood at 50, right at the turning point between expansion and contraction.
• We believe that the industrial economy is not likely to have a hard landing for three reasons. First, the operating conditions of firms have been improving over the past four quarters. Second, the largest challenge facing the economy – overcapacity – has stabilized since Q4 last year. Finally, financing is not a bottleneck for industrial growth.
• However, the challenges facing the Chinese economy are structural and fundamental. Overcapacity is still a prominent problem, with 39% of firms reporting supply exceeding demand for their products. Moreover, cost increases, the second challenge facing the economy, became a prominent issue again in 2015 Q1.
• The government should formulate long term policies along two dimensions. The first is to strengthen the policy of increasing domestic demand, which involves raising income and reducing household savings through public services. The other approach to dealing with weak demand and increased costs is industry upgrades and technological innovation.

To read the original article in Korean, please click here.