Business Confidence is High. Economic Freedom is Mixed.

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The Economist Intelligence Unit has just put out a preview of their China Business Confidence Index, based on a survey in October, and here is a brief summary of what 400 executives are saying:

    • Confidence remains high: The (newly established) Business Confidence Index is 62 (out of 100), with a lot of excitement about domestic sales.

This seems to match with what I am seeing on the ground – everyone wants a piece of the Chinese consumer market.

    • Regional focus remains on the big 3 traditional investment targets of Beijing, Shanghai and Guangdong (at least from head office perspective). Local executives are reported to be extending their gaze to locations including Jiangsu (26%), Shandong (22%), Zhejiang (22%), Tianjin (16%) and Fujian (16%).

Not much sign that the Go West policy is having much impact then. And a reminder that many people still define China (in practice) as the east coast, and that there are multiple internal markets to consider.

    • The top threats to operations are seen to be IPR, Corruption, Human Capital and Regulatory – with human capital coming in for special mention: “Demand for staff remains extremely high—68% of all respondents expect to increase staffing levels in China within the next 12 months—and competition for the best people is fuelling employee turnover and wage inflation.”

IPR and corruption have both had a lot of press recently – largely as a result of government initiatives. Both have a long way to go, but seem to be moving in the right direction. While people have been learning to live with those issues, I suspect that the war for talent will rage on and create new challenges.

So much for the confidence of bullish business people…but what about level-headed, often sober, economists?

According to the Heritage Foundation’s latest report (h/t China Challenges):

    “China’s economy is 54 percent free…which makes it the world’s 119th freest economy. Its overall score is 1.4 percentage points lower than last year, partially reflecting new methodological detail. China is ranked 22nd out of 30 countries in the Asia–Pacific region, and its overall score is slightly lower than the regional average.”

The report says China is relatively low on Property Rights (20%), Financial Freedom (30%), Investment Freedom (30%) and Freedom from Corruption (32%). It scrapes a pass on Business Freedom (54.9%), while doing better on Labour Freedom (63.5%), Trade Freedom (68%), Monetary Freedom (75.5%), Fiscal Freedom (77.7%), and Freedom from Government – at least in terms of government expenditure – (88.6%).

I am sure all that tells us something…but then again, so does having a few beers with customers, suppliers and varied international, irrational, and overly emotional business people. I know which I prefer!

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