China’s business owners most optimistic in the world: about growth prospects in 2006

Results show mid-size businesses surging ahead in 2006 .

The results of the first independent survey of business owners in Mainland China show that business owners are among the most confident in the world about the local economy with an optimism balance* of +79% (see figure one). Only three countries/territories out of thirty surveyed – India, Ireland and South Africa – were more optimistic. And when asked about prospects for growth in turnover in 2006, Mainland China topped the table with a balance of +86%. This made it the most optimistic country in the survey.

Other key international economic indicators show that the ‘economic miracle’ in Mainland China is not just for large enterprises but has penetrated deep into the economic infrastructure – with mid-sized businesses performing exceptionally well on a range of indices:

• medium-sized businesses in Mainland China are bullish about export prospects for the year ahead. The survey balance of +26% was one of the highest among the thirty countries/territories surveyed

• employment outlook is very healthy with 49% of respondents forecasting an increase in their workforce

• the surge in investment is set to continue – with 58% intending to invest more in buildings and 53% in plant and machinery

• the results show that 40% of mid-sized businesses in Mainland China export – which is already near the EU (European Union), NAFTA (US, Canada and Mexico) and global averages. However, the percentage with more than a quarter of their turnover in exports is 45% - much lower than in the EU, for example – but demonstrating the opportunity that exists for these companies within their own geographical boundaries

• however, businesses felt more constrained in their ability to raise prices, with 16% expecting to do so this year – well below companies in NAFTA and the EU.

Said, Gabriel Azedo, Divisional Director, Asia Pacific, Grant Thornton International: "Our survey demonstrates that the economic miracle Mainland China is experiencing is not only benefiting large enterprises but is trickling through to medium-sized companies. The survey, the first of its kind, shows that Mainland Chinese business owners are very positive about the economic prospects for the country but there is concern about constraints impacting the ability to grow their business. Who knows, this may be the first sign that Mainland China may not have the ability to meet the widely expected goal of it becoming the world’s largest economy by 2050."

But there are problems beneath the surface

Despite the optimism, however, business owners in Mainland China have significant worries about constraints on their businesses continuing to expand (see figure 2):

• a high proportion of mid-size businesses in Mainland China are clearly worried about a wide range of factors and are among the most concerned in the world about constraints to expansion
• in a listing of thirty countries/territories, Mainland China comes 4th in the table citing ‘cost of finance’ as a constraint to business expansion, 2nd for ‘shortage of working capital’, 5th for ‘shortage of long-term finance’ and 9th for ‘availability of skilled workforce’
• 39% of business owners were worried about ‘cost of finance’ as a constraint to business expansion, 39% about ‘shortage of working capital’, 32% about ‘shortage of long-term finance’ and 37% about the ‘availability of skilled workforce’
• in addition, 34% were worried about regulation and red tape and nearly half (44%) about shortages of orders and reduced demand (particularly due to increased domestic competition.

International engagement with Mainland China

The survey asked the owners of mid-sized businesses around the world what the impact of the ‘Chinese economic boom’ had been on their businesses. A handful felt they had been adversely affected (Poland (-9), Turkey (-16), Botswana (-31) and Thailand (-39)); a group of twelve countries/territories felt they were largely unaffected, mostly from Europe; and the majority (thirteen countries/territories) felt that they had experienced increased business as a result. This category included the majority of Asian countries in the survey; as well as Australia, the US, Argentina and Mexico; and Germany, the Netherlands and Sweden in Europe (see figure 3).

Gabriel Azedo, Divisional Director, Asia Pacific, Grant Thornton International, added: "It is interesting how the world is adapting to the growth of Mainland China – both NAFTA and East Asia are receptive to Mainland China but Europe is being more cautious about embracing the opportunities that trade with Mainland China presents."

When asked whether Mainland China was an opportunity or a threat for their businesses, more than a third of mid-sized businesses in NAFTA and East Asia responded positively on both counts – reflecting how engaged they are with Mainland China and how important it is to their future. In Europe, however, just ten percent of businesses saw Mainland China as an opportunity with slightly more seeing it as a threat. The main message from Europe is one of lack of engagement compared with the rest of the world.

Mainland China’s growing importance in international trade is demonstrated by the fact that nearly one in five medium-sized businesses in the survey now imports from Mainland China. It is ahead of the other major growing Asian economy - India - when compared by imports. Worldwide, some 14% of mid-sized businesses in the survey also export to Mainland China. In Taiwan, the US, Germany and Italy, this rises to one fifth of all respondents. This ranks Mainland China fourth as the top export destinations in the survey – compared with sixth in 2003.

The survey also revealed that one in ten of mid-sized businesses worldwide had outsourced operations to another country/territory. Hong Kong topped the outsourcing table (26% of businesses) followed by the US (18%). The leading destination for outsourcing anywhere in the world was Mainland China – with a third (31%) of respondents already transferring or planning to transfer operations. India was next (27% followed at a distance by Mexico (8%) and Malaysia (5%).

Ends

Notes to editors

The Grant Thornton International Business Owners Survey (IBOS) was carried out among more than 7,000 owners of medium-sized businesses from 30 countries/territories during Q4 2005. IBOS began in 2002 and builds on the European Business Survey (EBS) which Grant Thornton International ran from 1993 to 2001. The research was conducted by Experian Business Strategies Limited and Harris Interactive.

The research included Mainland China for the first time. The ground-breaking survey of 300 business owners required approval from the Chinese Government and was conducted in Q4 2005 across a wide selection of industries.

* The ‘balance’ is the difference between the proportion of businesses indicating optimism and those indicating pessimism, or between those indicating an increase and those indicating a decrease

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