- China slowdown hits business growth prospects of key trading partners
New research from Grant Thornton’s International Business Report (IBR), a survey of 2,500+ business leaders in 36 economies, reveals the extent to which contagion caused by China’s economic slowdown is spreading to businesses around the world.
Business confidence and expectations for revenue and exports are down, not just in China’s near neighbours, but in several major economies which count on the world’s second biggest economy as a major trading partner.
In China, optimism slipped 20 percentage points to net 26% in Q3-2015. And the falls recorded in many of China’s top trading partners were equally as striking: Germany (down 46pp to 46%), Japan (down 36pp to -28%), Australia (down 15pp to 39%) and the ASEAN nations (down 22pp to 18%) all reported sharp dips in optimism. The global figure dropped 7pp to net 38%.
Francesca Lagerberg, global leader for tax services at Grant Thornton, said:
“The slowdown in China is a major concern for the global economy at a time of stuttering growth and heightened uncertainty. The past three months have shown how reliant global growth has become on China – 20 years ago it was the top export destination for just two countries. Today that figure is 43.
“We know that business sentiment affects firms’ plans to invest and grow, and there is evidence that the reaction to the Chinese slowdown could be more than a flash in the pan. The IMF warned earlier this month that financial stability is far from assured over the next year, and marked China as one to watch. Having a China strategy remains essential for businesses with international ambitions but the rebalancing of its economies highlights that diversification is essential to prevent a damaging collapse in export activity.”
The IBR reveals that business growth prospects in major trading partners have also been hit. The proportion of ASEAN businesses expecting to increase revenues over in the next 12 months has fallen 21pp to 31%. And expectations for increasing exports to China – the group's top trade partner – have dropped to 0%.
In Germany, where China accounts for 6.5% of exports, both revenue (down 42pp) and exports (down 7pp) have been hit sharply as orders – particularly of machinery – have slowed this year. Australia, which counts on China for a third of export earnings has seen export expectations slide further to just 5%, down 9pp from Q2. Japan and Brazil have also seen revenue prospects contract.
The depreciation of the yuan does seem to have improved export hopes of Chinese businesses (up 5pp to 14%). However this has also made imports to China more expensive with businesses in Brazil (up 9pp to 47%) and Russia (up 9% to 83%) increasingly concerned about the impact of exchange rate fluctuations on their ability to grow.
Francesca Lagerberg added:
“The rebalancing of China’s economy was never going to be all ‘plain sailing’. The stockmarket crash was dramatic but Chinese equities were clearly out of line with fundamentals. And the impact on local business growth prospects has been relatively muted.
“The bigger challenges appear to lie with those economies which have bet heavily on China. The end of the commodity supercycle had already dampened growth prospects in places like Australia and Brazil, but we are now seeing higher value-add exporters like Germany and Japan begin to suffer. As China moves away from investment towards consumption, it will demand more services, but many of these will be provided locally.
“For businesses the message is clear: China remains a high-growth economy which offers fantastic opportunities but overreliance on any market is dangerous. You need to be continually assessing and exploring new markets if you want to grow your business in these turbulent times.”
Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. This unique survey draws upon 22 years of trend data for most European participants and 11 years for many non-European economies. More information: www.grantthornton.global
Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis, primarily by telephone. IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with more than 2,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in September 2015.