Chinese businesses have slashed production and productive capacity in response to economic and financial conditions that point toward the possibility of deflation, the results of the latest Xinhua Finance/MNI China Business Sentiment Survey indicate. The headline sentiment index for current business conditions in November fell sharply to 39.87 from 49.06, only the second time the index has been in contraction.
Other indexes, including the key new orders index, also remained in contraction while production indexes dropped into contraction for the first time in the almost four years of the survey’s history.
An index figure above 50 indicates that the business activity is growing or improving, a figure below 50 that it is shrinking. The further the figure above or below 50, the faster the growth or contraction.
Price indexes also dropped sharply, suggesting that China may be facing deflationary conditions just a few months after inflation topped the list of government worries.
The survey was released today by Xinhua Finance (TSE Mothers: 9399) and Market News International (MNI), a part of the news service line of Xinhua Finance. The monthly survey was conducted November 10-25. Since its inception in January, 2005, the survey has accurately tracked and predicted overall Chinese economic conditions, providing important intelligence ahead of government data.