Unexpected optimism among treasurers about their China business
What drives CFOs’ confidence in the Chinese economy?
Despite trade tensions, currency volatility and liquidity concerns, optimism about business in China still prevails. Almost half (48%) of the respondents to a survey commissioned by Standard Chartered in November 2018 expect their China businesses to perform better in 2019 compared to the year before. Interviews with over 150 corporate treasurers and senior treasury and finance executives from Asia, Europe and MENA reveal that opportunities related to the Belt and Road Initiative (BRI) and confidence in government fiscal and monetary policies are among the drivers for such optimism.
Meanwhile, China corporates strongly believe easier credit conditions or additional funding channels in China (46%) and monetary policy easing (42%) would improve their business. In contrast, overseas MNCs favour more flexible cross-border liquidity management (40%) and monetary policy easing (37%).
Cornered by the credit crunch in China, treasurers believe the targeted monetary easing would likely improve conditions for doing business. Such belief also boosts the confidence in the outlook of their China business in 2019. “Our company’s China business in 2019 will be slightly better than 2018. The expectation is based on our business and the government policies. From 2017 to 2018, the government has adjusted regulations on small and medium-sized enterprises. I think the policies will be easier for those companies in the future. This will have a positive impact on China’s economy,” says a treasurer of a Chinese energy company.
The data also reveals an interesting pattern in which respondents expecting a stronger RMB tend to be more bullish on their China business.
Despite the optimism, headwinds including the economic slowdown in China and prolonged trade tensions are worries for respondents. “I think our company’s China business in 2019 will be slightly worse than 2018. Our business is mainly focused on the domestic market. We think that market will produce growth in 2019 that is slower than that observed in 2018,” says a treasury executive of an electric appliance manufacturer in China.
On the topic of trade tensions, the majority of respondents consider it a medium to long-term risk and expect it to continue for more than three years. Indeed, one CFO who is cautious about this issue comments, “I don’t think that the United States will always raise the tariffs. They will try different ways to suppress the competition from China.”
Apart from the two obvious macro factors, exchange rate fluctuation is also another concern. As long as the exchange rate fluctuates, the price of purchasing and acquisition will follow. “Generally, our price is set in US dollars, but contracts we have signed in China are in renminbi. With the exchange rate changes, some suppliers will tighten the recovery of our receivables. This will also tighten the cash flow of our company,” says a survey respondent from an aero-tech engineering company.
However, despite the challenges, some companies are harvesting benefits from the Belt and Road Initiative. “We have projects in East Africa, Middle East, Europe and Southeast Asia. I think the whole company will have better business performance in 2019. With the promoting of the Belt and Road Initiative and the opening-up of the energy area, we have participated in some huge projects in emerging markets. Besides, the current development projects are all of a huge volume,” adds one treasurer of a Chinese state-owned conglomerate.
The survey was conducted by Asset Benchmark Research in November 2018.
Click here to read the full China Business Outlook 2019 report.
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14 May 2019