Look ahead with confidence, and increasingly look south eastwards too.
That was the message emerging last week from the Chinese participants in a regular industry survey, which measures trading company sentiment.
The HSBC Trade Confidence Index is compiled from interviews with more than 5,000 trade-oriented small and mid-market enterprises globally. Respondents are asked for their six-month outlook on a range of trade-related topics, including their expectations for trade volumes, their view on buyer and supplier risks, their trade finance needs, and the potential impact of changes in regulations on their businesses. The results are then crunched into an index ranging from 0 to 200, where 200 represents the highest confidence level, 0 the lowest and 100 is neutral.
The index has been in positive territory since it was launched in the first half of 2009, and recorded another increase in its most recent iteration, to an international mean of 116.
Unsurprisingly, respondents from emerging markets are most confident. But everyone except the French was positive (they came in at 95) in the most recent results, with Indian and UAE respondents the most buoyant. Expectations of trade growth with the Greater China region also figured predominantly from all other regions of the world. Simon Constantinides, HSBC Head of Trade and Supply Chain for Asia-Pacific, ex-Greater China took it as further evidence of the shift in trade momentum towards emerging markets.
What about China’s 300 respondents? Well, they were largely upbeat, with just over two-thirds expecting trade volumes to increase in the next six months. Intra-regional trade in Asia seems to be driving much of the positive outlook. A fifth of the Chinese questioned thought that Southeast Asia would offer the biggest growth opportunities in the next six months, for instance, up from 10% six months ago. Back in January (WiC44), we wrote about the inauguration of the ASEAN China Free Trade Area (ACFTA) – 11 markets, 1.9 billion people and significant reductions in tariffs – so the findings may offer an early glimpse of the trading bloc’s potential.
There was at least one more surprising finding: that only 12% of Chinese respondents were worried that trade regulations might hit their businesses in the coming half-year. That made them the least pessimistic globally about trade barriers, which seems a little counter-intuitive given that so much of the debate recently seems to have involved discussion of China’s own trade and monetary policies. One inference here is that Chinese businesspeople have not been hearing as much of the rhetoric as the rest of us. Another could be that they are aware of it – but do not think that the talk will result in much action.
Where the respondents are more bearish, however, is when it comes to currency policy. Clearly, the speculation that a revaluation of the yuan could be imminent is having more of an impact on sentiment, with 30% of those questioned concerned that fluctuating exchange rates could dampen trading opportunities. Currency reform remains by far their greatest anxiety, outweighing other potential concerns such as a lack of market demand for their products or declining profit margins.
Of course, news this week that China was back into trade surplus in April ($1.7 billion into the black versus a $7.2 billion deficit in March) has been stirring the currency debate again.
On one side: those who see the latest numbers as confirmation that the March data was a blip (and who expect larger surpluses to be posted in the remaining months of the year).
On the other: those who say April’s surplus was still a slim one, and well down on a year ago. Their focus is more on other trends, especially that imports look to be growing faster than exports. Hence the calls for the pressure for a stronger yuan to be resisted, especially with the ongoing market uncertainty in the EU (China’s largest export market).
Greek tragedy or not, this particular plot still has some way to run.
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