Chinese Economy
BusinessChina Business

Chinese companies prepare for improving consumer sentiment

Mainland companies prepare to take advantage of improving consumer sentiment and signs the slowdown is likely to ease in the coming months

PUBLISHED : Saturday, 03 November, 2012, 12:00am
UPDATED : Friday, 08 May, 2015, 9:46am

Months before China closes the lid on the Year of the Dragon, Guangzhou Aoking Leather is ramping up luggage production, adding to signs that the slowdown in the world's second-largest economy is poised to ease.

"People's sentiment and confidence in the economy and in their income prospects are improving," said Song Chunhong, a deputy marketing manager at the company in Guangdong.

Sheng Laiyun, of the National Bureau of Statistics, sees broader signs of recovery in the more-developed seaboard provinces, which are usually first to register shifts in the economy's prospects. "The duck knows first when the river becomes warm in spring," he said, quoting an 11th-century Chinese poem.

While China's years of 10 per cent growth may be behind it, a stabilisation about 8 per cent would help counter what the International Monetary Fund last month called an "alarmingly high" risk of a steeper drop in global expansion.

Overseas firms from computer maker Dell to Hong Kong jewellery makers see sales in mainland China improving in coming months, and domestic manufacturers are more confident, a release showed yesterday.

"We have seen an increasing amount of evidence for green shoots" on the mainland, said Lu Ting, the head of greater China economics at Bank of America, who raised his fourth-quarter forecast for growth to 7.8 per cent from 7.5 per cent.

Lu said gross domestic product would rise 8.1 per cent next year, up from 7.7 per cent.

Manufacturing expanded last month for the first time in three months, according to a purchasing managers' index, while a similar gauge from HSBC Holdings and Markit Economics posted the biggest gain since October 2010.

Industrial companies' profits recorded the first year-on-year gain in September since March.

Accelerations in consumption and investment are having an impact just as leaders prepare for a once-a-decade power handover starting with a Communist Party congress next week. The stabilisation would be good news for the next generation of leaders headed by Xi Jinping, set to succeed Hu Jintao as party general secretary this month.

"China's looking rather impressive," said Jim O'Neill, the chairman of Goldman Sachs Asset Management in London, who coined the BRIC acronym to describe the large emerging markets of Brazil, Russia, India and China.

Data for the past two months offer "more confidence that the fourth quarter is likely to be stronger".

Recovery is also evident at Wenzhou Hualong Amusement Toys, a maker of outdoor child-play equipment for export and domestic sale, where demand is "much better" than six months ago, according to manager Chen Jianyun.

Larger companies seeing improvement include China Vanke, the biggest mainland-listed developer by market value, and China Shipping Container Lines, which returned to profit in the third quarter.

"There is a significant uptick as we have gone through the quarter," said Amit Midha, the president of the Asia division of Dell, the fourth-largest personal computer maker.

Growth in coastal export hubs is picking up. Zhejiang province saw GDP climb 7.7 per cent in the year to September, compared with 7.4 per cent in the first half. Guangdong accelerated to 7.9 per cent from 7.4 per cent over the same period and Jiangsu to 10.1 per cent from 9.9 per cent, according to provincial statistics offices.

Even with a rebound, economists are less sanguine than they were six months ago. Median forecasts in a survey last month were for 7.7 per cent expansion this year and 8 per cent next, compared with April projections of 8.4 per cent and 8.5 per cent.

"Overcapacity, weak private investment and rising costs as the labour supply shrinks will restrain China's acceleration," said Tao Dong, the head of Asia economics excluding Japan at Credit Suisse Group in Hong Kong.

Even so, signs of a comeback are spreading.

Song said a new focus on domestic sales was helping the company after sluggish exports battered business earlier this year. The firm is expanding outlets and increasing the number of agents.