Top Executives at Northern-European subsidiaries in China are expecting a continued very favorable business condition on the Chinese market in the short term. The companies now turn to a more aggressive expansion strategy which includes increased investments and hiring new staff.
While optimism is increasing in several areas, the profit expectations decrease slightly, suggesting pressure on the margins with rising manufacturing costs and increased competition.
The Chinese economy grew by 8.7 percent last year while almost every single country had negative growth. Massive economic incentives funded by Chinese banks is behind much of the growth while private consumption increases and exports now increase as well.
- When the Nordic and German corporations predict the outcome for 2010, it is no doubt that China has top priority compared to other markets, says Fredrik Hähnel, which is a client manager at SEB in China and head of SEB China Financial Index.
He notes that 83 percent of large companies are planning further investment over the next six months and that a fifth of them are even planning for major investments.
Lower profits indicate lower margins
At the same time, more companies expect lower profits than previously suggesting deteriorating margins.
- Over half of the firms in our survey have manufacturing facilities in China. Based on discussions with several of them, and based on statistics, we see that manufacturing costs have gone up slightly, mainly as a result of increased raw material costs, says Fredrik Hähnel.
He points out that half of the companies believe in the strengthening of the Chinese currency in the future. That, combined with increased competition and oversupply in many sectors makes it difficult to raise prices of final products. Instead, it affects companies' margins.
About half of the companies that participated in the survey for SEB China Financial Index perceive a declining customer demand as the main concern over the next six months while 13 percent perceive a shortage of skilled labor as the biggest concern.
Cecilia Helland