Professor of Economics, Associate Dean for Asia, Director of the Case Center, Director of China Economy and Sustainable Development Center, Cheung Kong Graduate School of Business (CKGSB)
Corruption, Financial Markets, Macroeconomics, Managerial Incentives and Market Competition, Real Estate, Reform, Taxation, Telecommunications Privatization, Valuation in Emerging Markets
Optimism for Chinese firms is increasing. As they’re making money, they also face different issues. The CKGSB Business Conditions Index posted a mark of 60.8 in November, up from October’s 58.5. This shows that for the survey’s sample firms, of which the majority is relatively successful in China, the next six months are viewed with increased optimism. The CKGSB BCI comprises four sub-indices. Of these, corporate sales fell slightly from 75.4 to 74.0, while corporate profits rose from 57.4 to 61.8. The fact that both of these indices are both well above the confidence threshold of 50 shows that company prospects are improving.
Everyone in the world is concerned about how the Chinese economy is faring and understandably so. China’s linkages with the world mean that the health of the Chinese economy has a bearing on other economies as well. The CKGSB Business Conditions Index, based on a survey conducted each month, gauges business sentiment about the macro-economic environment among successful Chinese business executives. BCI registered 54.5 in August, slightly less than July’s 56.3. Corporate sales and inventory levels rose slightly.
Having delayed serious structural reforms, China faces eye-watering overcapacity in heavy industries. Steel production volume is more than double that of the next four leading producers combined: Japan, India, the United States and Russia. Aluminum production capacity reached 40 million tons last year, exceeding global consumption by 9 million tons. Most remarkably, between 2011 and 2013 China produced more cement than the US did during the entire 20th century—6.6 gigatons, compared to the US’s 4.5. What can China possibly do about this excess capacity that is weighing on the balance sheets of debt-ridden firms reeling from China’s economic slowdown?
How do Chinese companies view the next few months? The CKGSB Business Conditions Index registered 59.3 in April, falling slightly on March’s overall index of 59.7. This shows that for the survey’s sample firms, of which the majority are relatively successful in China, the next few months are being viewed with some optimism. The CKGSB Business Conditions Index comprises four sub-indices for corporate sales, corporate profits, corporate financing and inventory levels. Corporate sales fell slightly from 74.5 to 73.1, while the profit index rose from 58.9 in March to 61.5 in April. With the sales forecast falling and the profit rising, this shows that cost expectations are improving.
Everyone in the world is concerned about how the Chinese economy is faring and understandably so. China’s linkages with the world mean that the health of the Chinese economy has a bearing on other economies as well. The CKGSB Business Conditions Index, based on a survey conducted each month, gauges business sentiment about the macro-economic environment among successful Chinese business executives. In January, the Index showed that for most relatively successful firms in China, optimism about business conditions over the next six months is waning, and executives are at best cautiously optimistic.