China business sentiment hits five-month low in September

Production and new orders decline as credit tightens.

China business sentiment fell to the lowest level in five months in September, having reached an eight month high in August, as the impact of stimulus measures waned and companies re-assessed the outlook for the future.

The MNI China Business Indicator fell to 52.2 in September from a revised 57.3 in August, led by a decline in confidence among manufacturing companies.

There was an even sharper decline in firms’ short-term outlook, with the Future Expectations Indicator falling to 53.4 in September from 61.8 in August.

The fall in overall sentiment was accompanied by declines in both production and new orders, while companies reported that credit conditions were the tightest since February.

Having risen to a three-year high in August, Production fell back to the lowest level since April, although MNI Indicators notes that the trend and outlook remained reasonably firm.

According to Philip Uglow, Chief Economist of MNI Indicators “This month, firms seemingly underwent a reality check with sentiment falling to the lowest since April. While it would be prudent to see the October figures before drawing too many conclusions, the survey raises questions about whether the concerted effort to support the economy has sufficient momentum to keep growth in line with the government’s 2014 forecast of 7.5%. Certainly the deflationary pressures evident in the survey give the central bank wiggle room should it decide to loosen monetary policy further.”