Study unveils growing concern over rising costs, slowing markets

BEIJING / SHANGHAI - Business confidence fell in the fourth quarter, the second consecutive drop, amid growing concern over a slowdown in the world's second-largest economy.

The business confidence index was down 6 percentage points more than the third quarter to 41.7 percent, the People's Bank of China, the central bank, said in a statement on Thursday.

A reading above 50 expresses optimism; anything beneath that figure indicates pessimism.

Of 5,000 companies surveyed, 24.8 percent believe that the economy's temperature is "relatively cool", while a decreasing number believe that things are still going well. The amount holding the latter viewpoint has dropped from 74.3 percent in the first quarter to 67.1 percent now, according to the central bank.

Fang Qi, general manager of Ningbo Shentong Electrical Co Ltd, said the company's profit margin will probably drop by more than 10 percent this year due to falling sales, rising labor costs and dollar depreciation.

"We are now developing new products to attract customers in emerging markets as demand from Europe and the US continues to fall," Fang said. "But the rising cost of labor and raw materials remains a big challenge for us next year."

As a medium-sized vacuum cleaner manufacturer, Shentong's labor costs have risen nearly 20 percent this year, Fang said.

Her woes are shared by Zhang Beilei, the owner of Wenzhou Gaotian Shoe Co Ltd.

"We're not very positive about the current shoe industry. It has been shrinking a lot due to lower demand from abroad and higher costs at home," Zhang said.

Zhang said that slimmer profit margins for small and medium firms will definitely worsen and more companies and factories will be forced to shut down in the coming year.

Wang Haifeng, director of the International Cooperation Center affiliated with the National Development and Reform Commission, said the global economic slowdown, China's reluctance to launch a large stimulus plan and a falling property market are major reasons for declining business confidence.

A number of manufacturers in Zhejiang, Fujian and Jiangsu provinces also have property investments and feel the market correction, Wang said.

"Their manufacturing business, in fact, is basically fine. But they need money to save their investments in the property sector," Wang said.

Hou Yunchun, deputy director of the Development Research Center of the State Council, said that the property market will pose the biggest challenge for China's economy in the coming years.

The property bubble should be deflated slowly and not pricked, Hou said.

China's economic growth slowed to 9.1 percent in the third quarter from 9.7 percent in the first and 9.5 percent in the second.

Most economists estimated China's economy will grow at a range between 8.2 percent and 8.6 percent in 2012.

But investment bank Nomura International (Hong Kong) Ltd said the growth is likely to slip to 7.9 percent next year. The last time that China's economic growth was below 8 percent was in 1998 when the financial crisis hit Asia.

The China Index Academy, a real estate consultancy institute, said in a recent report that property prices in the major cities would fall 20 percent next year because the policy restriction on the number of homes a family can purchase will continue.

The price drop in smaller cities, according to the report, will be close to 15 percent. And the fall in even smaller cities will be around 3 percent to 5 percent.

Meanwhile, property was replaced by funds and wealth management products as primary investment choices for residents, according to the central bank survey.

Only 13.9 percent of residents plan to purchase a home in the coming three months, down 0.3 percentage point from the third quarter, the survey showed. The proportion is close to a record low of 13.2 percent in the third quarter of 2008.

Expectations for inflation in China were lower for the first quarter of 2012 versus the fourth quarter of this year, according to the central bank's survey of 20,000 households.

Among households surveyed, 36.8 percent of respondents expected consumer prices to climb in the coming quarter, sharply lower than 49.6 percent a quarter ago.

After a slew of tightening measures by the government this year, including six hikes in the bank reserve requirement ratio and three interest rate rises, the consumer price index, the main gauge of inflation, eased to 4.2 percent in November from the three-year high of 6.5 percent in July.

The central bank reiterated that it will continue to implement a prudent monetary policy in 2012 while making it more "targeted, flexible and foresighted" to support stable and healthy economic growth.

Guangzhou Jia Yu medical equipment Limited