Following a strong end to 2014, business sentiment amongChina's largest companies fell at the beginning of 2015, led by significant declines in output and orders.
The MNI China Business Indicator fell to 53.7 in January from 56.2 in December, the first monthly drop in three months. Overall sentiment is now at the lowest since October, before the People's Bank ofChina cut its benchmark deposit and lending rates to stimulate economic activity.
December saw the Production and New Orders Indicators hit three and four year highs respectively, boosted by the approval of over$100 billion in infrastructure projects in October. The impact waned in January with both measures falling by just under 10% on the month. In spite of the latest fall, both indicators remained well above the breakeven 50 level and also above the 2014 average. This contrasts with the MNI China Business Indicator which is now slightly below it.
The recent efforts by the central bank to increase liquidity, including the rate cut, continued to have a positive impact on credit supply. The Availability of Credit Indicator eased slightly in January but remained above the breakeven 50 level. The cost of credit, measured by the Interest Rates Paid Indicator, increased following the significant drop in December, although it remains at a relatively low level.
The companies in our panel have not yet been able to capitalise on the decline in global commodity prices and still face a squeeze on prices. Input Prices increased to the highest sinceApril 2012 while Prices Received fell to the lowest for just over two years.
"While the January data marked a disappointing start to the year, the latest fall followed significant strength towards the end of 2014 on the back of infrastructure spending and the rate cut. Trend growth in overall sentiment, orders and production still remains above last year's levels," saidPhilip Uglow, Chief Economist of MNI Indicators.
"We expect 2015, like 2014, to remain choppy with activity buffeted by domestic policy decisions. While the international environment remains volatile, we expect a general pick-up in global growth to help offset some of the slowdown in domestic investment this year. Still, further action from the central bank seems likely to support activity."
