SEB's China Financial Index: Investments up as ...

Senior managers at Northern European subsidiaries in China foresee a continued
improvement in business prospects on the Chinese market. Companies are now
moving to a more aggressive strategy in China with increased investments and
more recruitments. Meanwhile, profit expectations are falling which is
indicating lower margins due to increased production costs and increasing
competition.

The Chinese economy grew by 8.7 per cent last year thereby outperforming all
other major markets in the world. Massive fiscal stimulus financed by huge bank
lending were factors behind the growth, which is now supported by increasing
private consumption and improved export figures.

"When Nordic and German multinationals look into the crystal ball of 2010 there
is now doubt that China is a top priority in relation to other markets.
Companies are now moving back into an offensive strategy in China and 83 per
cent of the companies in our survey are planning for continued investments
during the coming six months. 20 per cent of those are planning major
investments," says Fredrik Hähnel, Client responsible at SEB in China.

However, more companies than previously are now expecting lower profits, which
indicates deteriorating margins.

"More than half of the companies in our survey have manufacturing in China.
Based on discussion with them, and based on official statistics, we can see that
manufacturing costs have gone up, mainly due to increased costs for raw
material. The companies are also expecting an appreciation of the RMB against
the US-dollar going forward. This in combination with increased competition and
oversupply in almost every manufacturing sector limits the ability of firms to
raise the prices of final goods," Hähnel continues.

The expansive fiscal and monetary policies in China have succeeded in keeping a
high economic growth rate but more economists are now warning of overheating if
the government does not implement a more cautious policy as both exports and
domestic consumption are now improving. Property prices have gone up
dramatically and there are signs that inflation is coming back, which make more
observers expect a tighter policy going forward. This can also be seen in the
answers from Nordic and German companies.

"Half of the companies in our survey believe that the RMB will start
appreciating against the US-dollar and more than two thirds expect one or more
interest rate hikes," Hähnel concludes.

48 per cent of respondents see lower customer demand as the greatest cause for
concern the coming 6 months, while 13 per cent see lack of qualified labor as
the larges worry. Other issues are complex rules and increasing costs of raw
material.

This is the third time SEB publishes the China Financial Index, a unique survey
published semi-annually. The purpose is to mirror changes in expectations among
North European companies in China, in order to facilitate the understanding of
the economic and financial development in the country. The survey includes 11
questions related to the business climate, investment plans, recruitment plans
and the view of currencies and interest rates. The full report can be downloaded
from: www.seb.se <

http://www.seb.se>

_____________________________________________
För ytterligare information kontakta:
Fredrik Hähnel, Client Responsible, SEB in China, +86 138 1680 99 77
Press contact: Elisabeth Lennhede, +46 70 763 99 16, [e-mail]
<mailto:[e-mail]>


[HUG#1394162]





    China Financial Index March 2010: 

http://hugin.info/1208/R/1394162/351111.pdf