Firms upbeat amid inflation fears

PUBLISHED : Friday, 18 February, 2011, 12:00am
UPDATED : Friday, 18 February, 2011, 12:00am

Mainland executives are still confident about the domestic economy and will consider takeovers this year despite growing concerns about rising inflation and tightening credit, according to an Ernst & Young survey.

It said 32 per cent of the 62 mainland executives surveyed in October last year saw funding available within six months and 44 per cent expected to finance significant transactions over the next two years.

However, they also expected borrowing costs to rise this year, said Bob Partridge, a partner at Ernst & Young who advises on mergers and acquisitions.

Although the survey was compiled late last year, Partridge believed most mainland executives were still upbeat about the economic outlook.

While many companies had strong balance sheets and were good at containing costs, their concern this year would be managing inflation-related costs, Partridge said. Inflation last year was 4.6 per cent, or 2.1 per cent excluding food and energy.

The People's Bank of China has raised benchmark interest rates several times to contain inflation.

Beijing-based brokerage China International Capital Corp expects inflation to rise to just over 5 per cent this month and predicts further credit tightening by the central bank this year.

But not all industries on the mainland were optimistic about the economy and their businesses.

Edmond de Rothschild Asset Management said low value-added sectors such as textiles and toys had been struggling as a result of rising costs of raw materials.

While 61 per cent of mainland executives said in the survey that they wanted to improve operations and reduce costs, 79 per cent wanted to improve their cash flows.

Mainland firms are increasingly active in buying assets in Africa and Asia.

The survey showed that 35 per cent of the respondents expected to make acquisitions in the emerging markets in the next six months.



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