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Chinese executives less upbeat than global peers - Global Capital Confidence Barometer China - October 2012 - EY - China

Global Capital Confidence Barometer China - October 2012

Chinese executives less upbeat than global peers on economic outlook

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What is your perspective on the state of the global economy today?

What are the most significant challenges facing your business in light of the Eurozone crisis?

What measures/plans is your company putting in place to manage risk or take advantage of opportunities presented by the Eurozone crisis?

Level of confidence in credit availability at the global level

What is the primary source of your company’s deal financing in the next 12 months?

Which statement best describes your organization’s focus over the next 12 months?

What is the primary focus of your company's organic growth?

If you have excess cash, which of the following will be your focus over the next 12 months?



Most Chinese respondents remain concerned about the impact of the Eurozone crisis on their profitability and capital agenda.

Chinese executives are significantly less optimistic about the global economy in the most recent survey than six months ago, echoing the sentiment of the global survey.

Just 6% of Chinese respondents said the global economy is improving (Figure 1). That is a steep drop from 69% six months ago, and is lower than the 22% of their global peers in the current survey.

The overwhelming majority of Chinese executives, 73%, see the global economic situation as remaining stable.

 

Chinese respondents reported declining confidence in the prospects for global economic growth and in the regulatory environment.

Most Chinese executives – 83% of the survey sample – said they expect the economic downturn to last a further one to two years, compared with a smaller majority, 51%, of global executives who said the same.

Just 8% of Chinese respondents have confidence in the global regulatory environment, compared with 12% in April and 19% a year ago.

Chinese executives are similarly downbeat in their assessment of the local economy; just 6% in the most-recent survey see improvement, compared with 18% six months ago. Among their global colleagues, 35% of those surveyed in October said they see signs of improvement.

Given the gloomy economic backdrop, just 26% of Chinese companies surveyed said they expect to add to their workforce in the next year, in line with the 28% of global companies. The majority of Chinese and global respondents plan to keep their current workforce size.

 




73%

of Chinese respondents view global economic conditions as stable rather than improving.



 

Eurozone crisis concentrates minds

Like their global counterparts, most Chinese respondents said they are suffering direct impact from the Eurozone crisis and remain concerned about the impact of the crisis on their profitability and capital agenda.

Asked to name the most significant challenges facing their business due to the Eurozone problems, 64% of Chinese executives identified counterparty default risk, 63% identified revenue and margin pressure, while 37% mentioned supply chain risk (Figure 2).

 

 




64%

of Chinese respondents identified counterparty default risk as one of their most significant challenges due to the Eurozone crisis.



 

As a result, Chinese companies are focusing on reassessing counterparty risk, operational efficiency and transforming their business around supply chain risk (Figure 3).

 

 

Few problems accessing capital

Credit availability at the global level remains the rare bright spot in this survey. Thirty-five percent of Chinese respondents said access to credit is improving, up from 11% six months earlier, and above the 26% of global respondents who answered similarly (Figure 4).

Just 17% of Chinese companies report declining access to credit, compared with 30% in the global sample.

 

 

Chinese companies remain underleveraged compared with their global peers.

Consequently, just 10% now say they plan to refinance debt obligations in the next year, compared with 26% of global companies in this survey.

Chinese respondents are much more likely to use debt to finance deals over the next year, with 56% saying this would be their primary source of deal financing, compared with just 38% of global respondents (Figure 5).

 




56%

of Chinese respondents say that Debt would be their primary source of deal financing over the next year, compared with just 38% of global respondents.



 

China maintains push for growth

A higher percentage of Chinese respondents than global ones said they are focused on growth, with 45% of Chinese executives saying that growth remained their primary focus for the next 12 months, compared with 41% of the global survey (Figure 6).

Yet Chinese respondents were also more focused on maintaining stability than their global peers, with 41% giving this response, compared with just 25% of global respondents who gave the same answer.

 

 




45%

of Chinese companies plan to focus on growth orver the next 12 months, compared with 41% of global companies.



Organic growth remains the priority for both Chinese and global respondents to the October survey. But they are pursuing it in different ways.

Forty-six percent of Chinese executives said their primary growth strategy will be the exploitation of technology to develop new markets and products, while the top growth strategy for their global counterparts remains more rigorous execution of core products and existing markets (Figure 7).

The Chinese views are not surprising given the emphasis by the government on the importance of technology in advancing Chinese companies.

 

 

Despite their relatively low levels of corporate debt, 46% of Chinese respondents said they would be most likely to use excess cash to pay down debt levels over the next 12 months, compared with 31% of the global sample (Figure 8).

This reflects the desire of many Chinese companies to avoid confronting balance sheet issues at the same time as they are facing operational challenges due to the struggling global economy.

By contrast, just 10% of Chinese executives said they would use excess cash to pursue M&A, a steep drop from the 25% who have favored M&A over the last two surveys, and below the 13% of global executives who said they would look for M&A opportunities

 

 



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