SEB’s China Financial Index Shows Confidence is Gradually Picking Up

After China lifted almost all of its Covid-19 containment measures, the positive recovery in the business outlook continued during the spring, and companies are now expecting both order intake and profits to rise over the next six months. At the same time, investment and staffing are under pressure due to concerns about customer demand, competition and geopolitics.

The spring edition of the China Financial Index is the first since China officially lifted almost all of its Covid-19 containment measures. With China’s borders opening up after three years of Covid-19 related measures, China’s GDP growth improved to 4.5 percent year-on-year in the first quarter of 2023. The country’s official GDP growth target for this year is set at around 5 percent and with a good start to the year, SEB expects China’s GDP growth to reach 5.9 percent in the full year 2023.

“Overall, sentiment among Northern European corporates doing business in China has turned more optimistic,“ said Juliette Xue Lascoux, General Manager of SEB Shanghai. “With more and more business visits taking place since the re-opening of China, foreign companies have started to become more forward-looking – setting up new strategies to meet the new challenges and opportunities that are emerging. We believe sentiment during the rest of the year will be dependent both on the overall performance of the Chinese economy and the operating environment for foreign companies in China.”

Looking at the sub-indices of the survey, both order intake and profit improved – with the order intake index rising to 60.3 from 53.7 in December and profit increasing to 60.7 from 53.7 in December. Half of the survey respondents now expect sales growth of 5-20 percent in the next six months, while 43 percent of the respondents now expect profit growth of 5-20 percent.

On the other hand, the investment and staffing indices are lower, with companies expressing concern about customer demand, competition and geopolitical risk. This has halted decision-making at the headquarters about new investments in China and expansion in terms of new staff hires.

“New investments are expected to slow down,” said Juliette Xue Lascoux. “With Chinese borders closed for the past three years, on-site visits were almost impossible and with online meetings only, foreign companies were unable to make decisions about new investments. Geopolitical developments in the past three years may also have impacted their investment decisions negatively, in our view.”

The survey also showed that customer demand is now the main concern among the survey participants, with some 45 percent citing that as their top concern over the next six months. Compared to the surveys in December last year and spring 2022, supply-chain disruptions are no longer any major concern for the survey respondents. Instead, competition and geopolitics have emerged as the two other major concerns, showing the more longer-term nature of these worries.

About the survey
SEB’s China Financial Index was first launched in 2007 and is today based on input from CEOs, CFOs or Treasurers at 60 subsidiaries of major Swedish, Finnish, Norwegian, Danish, German, British and Swiss companies. The latest survey was conducted between 4-26 May 2023.

Source – SEB