Focus on: mainland ChinaInternational Business Report 2012 – Economy focus seriesThe economy The business perspectiveIn an effort to cut reliance on exports and The Grant Thornton International Business Reportinvestment in favour of domestic consumption, (IBR) surveys more than 12,000 businesses in 40China’s economic growth rate target has been economies around the world. This report focuses ondropped from the 8.0% in place since 2005, to 7.5%. businesses in mainland China and their expectationsGlobal activity has slowed sharply as worries grow for the next 12 months, as illustrated in figure 1.about the eurozone debt crisis. Inflation sank to a The IBR survey tells us that businesses in29-month low in June, allowing the government the mainland China remain as optimistic about theirscope to introduce measures to stimulate the economy as they were in 2011. However, at 33%,economy. The Peoples Bank of China announced a optimism is well down on 2010 levels of 60%.surprise reduction in policy interest rates on 5 July, Expectations for employment are down on 2011,less than a month after the previous interest rate and below the BRIC average. A shortage ofreduction was announced. orders/reduced demand remains the greatest The key indicators1 are highlighted below: constraint on business growth prospects – at 44%• economic output expanded by 7.6% year-on- in Q2-2012 this is above the BRIC average and year in Q2-2012, its slowest rate since early 2009, is the highest result since 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.1 source: International Monetary Fund, The Economist and Experian.
The outlook Figure 1: Key indicators for businessesThe economy is forecast to expand by 8.2% in 2012,and to average 8.1% up to 2016. Consumption is Mainland China compared with the BRICs 2010 2011 Q2-2012 Q2-2012expected to become an increasingly important Chi Chi Chi BRICscontributor as incomes rise, but investment will Outlook for the economy over the next 12 monthsremain the key driver of expansion, despite a Net optimism over pessimism 60% 33% 33% 41%deceleration of spending on infrastructure. Netexports are expected to detract from growth as Change in employment levelsdemand from Europe further weakens. Government Net hiring expectations 40% 39% 24% 36%fiscal policy is expected to be expansionary,providing a modest boost to economic growth. Constraints on expansion The government will continue to monitor the Shortage of orders/reduced demand 37% 40% 44% 39%property market. Measures to prevent a housing Cost of finance 42% 30% 37% 41%bubble, include new taxes and regulations to deter Source: Grant Thornton IBR 2012residential 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. Talk to us to find out how we can help you dealwith the challenges your business is facing today.Xu HuaT +86 10 6526 4838E email@example.comW www.grantthornton.cn
International Business Report resultsThe results reveal that global business optimism Figure 2: Outlook for the economy over the next 12 months: Q4-2010 to Q2-2012rose marginally in Q2-2012 with net 23% of Net percentage businesses indicating optimism less those indicating pessimismbusinesses optimistic2 for their economies over the 70 60next 12 months. Businesses sentiment for the next 12 50months in mainland China is positive with net 33% 40of businesses optimistic, up from net 23% in the first 30quarter. 20 10 The sovereign debt crisis continues to weigh 0heavily on businesses confidence in Europe; Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012business optimism across the eurozone stands at net Mainland China 42 58 43 14 22 23 33 BRICs 54 57 44 25 34 41 41-5%. However confidence in the BRIC3 economies Global 23 34 31 3 0 19 23remains strongly positive at 41% and confidence inthe United States increased from 46% to 50%, the Source: Grant Thornton IBR 2012highest 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 levels observed this time last year (43%)• business sentiment remained unchanged for the BRICs standing at net 41%• globally, optimism levels have also risen, although it remains below the level seen in mainland China and the BRICs.2 the net figure is the proportion of companies reporting they are optimistic less those reporting they are pessimistic.3 the BRIC economies are Brazil, Russia, India and China
Employment Figure 3: Employment history: Q4-2010 to Q2-2012• net 24% of Chinese businesses expect Net percentage businesses employment to grow in the year ahead, 70 60 significantly lower than expectations in Q1 and 50 slightly lower than expectations in the BRICs 40• actual employment growth reported by Chinese 30 businesses in Q1 (14%) was significantly lower 20 10 than expected the previous quarter (53%). 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 2012 Source: Grant Thornton IBR 2012Revenue expectations Figure 4: Revenue expectations: Q4-2010 to Q2-2012• revenue expectations are marginally lower in Q2 Net percentage businesses indicating an increase less those indicating a decrease compared to Q1 for businesses in mainland 90 80 China 70• net 74% expect to increase revenue compared to 60 net 79% in Q1 50• expectations are in line with Q1 for businesses in 40 30 the BRICs and globally, with net 74% in the 20 BRICs and net 52% globally expecting to 10 increase revenue in the year ahead. 0 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Mainland China 69 85 84 69 74 79 74 BRICs 74 79 78 70 72 74 74 Global 46 55 55 45 43 52 52 Source: Grant Thornton IBR 2012
Profitability expectations Figure 5: Profitability expectations: Q4-2010 to Q2-2012• net 61% of businesses in mainland China expect Net percentage businesses indicating an increase less those indicating a decrease to increase profits over the next 12 months 90 80• this is down from net 74% in Q2-2011 70• globally, just 38% of businesses are expecting to 60 see profits increase in the year ahead. 50 40 30 20 10 0 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Mainland China 51 83 74 50 61 67 61 BRICs 65 72 66 56 58 61 58 Global 40 47 42 33 31 39 38 Source: Grant Thornton IBR 2012Constraints Figure 6: Constraints on expansion: Q2-2012• a shortage of orders/reduced demand is cited as Average 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 being the greatest constraint on business expansion for Chinese businesses (44%), its Shortage of orders/reduced demand 44 39 highest level since 2009 Cost of finance 37• the cost of finance is cited by 37% of Chinese 41 businesses and 41% of businesses in the BRIC Availability of skilled workforce 31 40 economies. Regulations/red tape 29 39 Shortage of working capital 25 30 Shortage of long term finance 20 29 ICT infrastructure 20 24 Transport infrastructure 18 27 Mainland China BRICs Source: Grant Thornton IBR 2012
Accessing finance Figure 7: Accessing finance: Q2-2012• the majority of Chinese businesses are happy Percentage of businesses with the level of support provided by lenders; 80 70 62% of class lenders as supportive or very 60 supportive towards their business, compared 50 with 72% of BRIC businesses 40• moving forward, 11% of Chinese businesses 30 20 expect finance to become more accessible, whilst 10 37% expect it to become less accessible. 0 62 72 0 5 11 33 37 25 Supportive Unsupportive More Less Lender support Accessibility of finance – next 12 months Mainland China BRICs Source: Grant Thornton IBR 2012Growth markets Figure 8: Growth markets: Q2-2012• Chinese businesses have identified local, Percentage of businesses domestic markets as their target markets for Domestic 84 growth (84%) Europe 16• despite the slowdown in Europe, 16% of businesses cite the region as a key target market Africa 10 for growth, followed by Africa (10%). Latin America 9 North America 8 Asia Pacific 7 Other 3 Source: Grant Thornton IBR 2012