A new quarterly survey of mainland chief financial officers shows a significant reversal of business expectations for the next 12 months. Companies are now planning to slash spending, shed staff and cut outsourced jobs while bracing for productivity declines and price cuts. As recently as September, mainland companies expected to increase capital spending, hiring and outsourcing while making productivity gains and leaving prices on their goods or services flat, according to the Duke/CFO Magazine business outlook survey released yesterday. But the sharp downturn of the past three months has forced an about-face in the outlook of mainland finance chiefs for the next 12 months. Compared with the results of the September poll, 78.4 per cent of respondents are less optimistic about the mainland's economy and 65.1 per cent are less optimistic about the financial prospects for their own company. The CFOs projected capital spending to drop an average 4 per cent in the next 12 months, in contrast to an average increase of 1.2 per cent projected in September. Hiring is expected to fall 1.4 per cent instead of growing 7.5 per cent, while productivity is now forecast to decline 0.8 per cent, instead of rising 4.5 per cent. In a sign that the mainland may be heading toward deflation, finance chiefs now expect prices of their goods and services to decline 1.9 per cent over the next 12 months. Given the rising pessimism of most of the responses to the poll, one surprising figure was that finance chiefs expect earnings growth of 4.2 per cent, a marked improvement from the decline of 5.2 per cent forecast by the previous survey. The conflicting data could be explained by the fact that given the economic uncertainty on the horizon, respondents ranked their own ability to forecast earnings results as among their top concerns. While Duke/CFO has conducted the broader survey since 1996, the China-specific portion has only been carried out for the past five quarters. As a leading indicator of economic growth, the survey is comparable to the purchasing managers' indices published since 2003 by brokerage CLSA and since 2005 by the official China Federation of Logistics and Purchasing. Both of the mainland's purchasing managers' indices fell to record lows last month, reflecting two to three consecutive months of contracting business output. Deflated expectations Cuts in hiring, spending and prices are expected next year, poll shows An atypically bright note in the survey is average projected earnings growth of: 4.2%
