Thought of the Day

China Business Confidence Improves in November


 
20 November 2024
 
Chinese Services sector activity has continued to support overall growth in the Chinese economy in recent months, despite obvious problems in the Manufacturing sector. Recent months data have suggested that even the Services sector has been teetering on the verge of recession. However the just released November data suggests that a turning point may have been reached. The crucial Business Confidence in particular is showing signs of coming back to life, as shown in the chart below:

It must be emphasized that not too much weight should be placed on a single data point from any individual economic index. Particular events, seasonality, problems with the data sample and many other factors can influence the results of a monthly panel survey. And November data taken as a whole cannot be described as wildly positive. However, the overall Service sector SMI is once again positive (albeit very modestly), and as already noted, Business Confidence is looking much healthier.

The Business Confidence Index is particularly important as the question asked of panel members relates to their confidence in the future course of business activity, not its present level. Sales Managers, because of the very nature of their work tend to be more attuned to the immediate future. They are in general very aware of levels of contracts they expect to be signed shortly, as well as current order books, with the potential personal impact of likely sales levels on bonuses linked to sales. Economists often refer to levels of Business Confidence as "animal spirits", reflecting the great importance of Confidence on future levels of investment and employment.

The November data does contain some positive results in addition to those outlined above. In both the Services and the Manufacturing sectors virtually all Indexes are at a several month high although some remain mired in the crucial sub 50 index zone. But the overall message must remain one of caution. Until more data points illuminate the likely course of economic activity in China in the last quarter, preparations to batten down hatches in case of stormy weather ahead might seem appropriate advice. Subscribers must now have an optimistic disposition before they can start to believe that the world's great growth engine of the past few decades is moving back towards its previously central role in sponsoring global economic expansion.
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