Chinese business conditions improved in June at their slowest pace so far this year, with companies indicating that credit availability deteriorated and that payrolls were too large, according to the latest results of the MNI China Business Sentiment Indicator.
But input prices continued to moderate while interest rates paid by companies fell sharply. Interest rates are expected to continue falling quickly in the coming three months as Beijing moves to ease policy more aggressively, the results indicate.
The overall Current Business Conditions Indicator fell to 53.21 from 54.40 in May, the lowest level for the headline index since last December. The final June result was a slight increase over last week's flash reading of 51.92, which was the lowest since January 2009.
An index figure above 50 indicates that business activity is growing or improving, a figure below 50 that it is shrinking or deteriorating. The further the figure above or below 50, the faster the growth/improvement or contraction/deterioration in activity.
The MNI China Business Sentiment Indicator was conducted June11-26. Survey questions were modeled on Japan's Tankan survey and the U.S. Institute for Supply Management's Report on Business. Results were compiled for both current conditions compared with a month ago and for expectations of conditions three months ahead.
Indices were compiled using the Institute for Supply Management's example: adding half of the percentage saying conditions were unchanged to the percentage of those saying conditions had improved generated the index. Therefore, a result higher than 50 indicates a net positive response. Companies agreed to participate in the survey, and to provide comments about business conditions, under the assurance that individual survey responses would not be divulged except as part of the overall results.
Companies surveyed were all listed on domestic stock markets or in Hong Kong, although some also have foreign listings. The companies chosen were a mix of manufacturers and non-manufacturers with about 75% of the companies responding to the survey involved in manufacturing.
Below are the questions asked in the full survey:
(1) Are your overall business conditions: better; same; worse?
(2) Is the productive capacity of your company: higher; same; lower?
(3) Is production: higher; same; lower?
(4) Are the interest rates you pay: rising; the same; falling?(5) Are new orders: higher; same; lower?
(6) How is the yuan exchange rate affecting your business: helping; no impact; hurting?
(7) Are the number of your employees: not enough; just right; too many?
(8) Is the financial position of your company: better; same; worse?
(9) Is the inventory level of finished goods: rising; same; falling?
(10) Is the order backlog: rising; the same; falling?
(11) Are input prices: rising; the same; falling?
(12) Is the availability of credit: better; the same: worse?