ZEW-PwC Indicator of Economic Sentiment China – Cautious Start into the "Year of the Horse" – Indicator of Economic Sentiment China Falls Slightly

The prospects for the Chinese economy have slightly deteriorated since the beginning of 2014, according to estimates of German executives. The current ZEW-PwC Indicator of Economic Sentiment China shows that 20 per cent of the respondents have come to expect a slowdown in business dynamics over the next twelve months. In the previous survey (November 2013), it was merely one out of ten executives with commercial relations to China who expected a slowdown in growth.

At the same time, the share of optimists who consider China to be capable of returning quickly to a dynamic growth path has decreased by almost 12 per cent to 38 per cent. "The Chinese economy is still growing significantly faster than most national economies, but the government’s shift from an export strategy towards domestic demand is not going entirely smoothly", explains Jens-Peter Otto, PwC partner and expert on China.

German export growing further

Despite the expected slowdown in growth, the respondents remain optimistic regarding the development of commercial relations. The majority of executives assume that German exports to China will further increase. The resulting stimulus for domestic consumption will compensate for the slower overall expansion of the Chinese economy, according to the surveyed executives.

"In the opposite direction, a continuing weakness of the European economies could further harm the Chinese exporting industry. About one-sixth of China’s exports go to the European Union", says ZEW economist Dr. Gunnar Lang.

The executives also expect an increased expansion of Chinese firms into international waters. Three out of four respondents believe that foreign investments will increase, and almost all executives (95 per cent) expect the number of equity holdings and acquisitions by Chinese investors to rise. Some 85 per cent expect increased engagement of Chinese investors in Germany.

"In the area of participations and private equity, business relations could become even more intense in the future. China and the European Union are negotiating the terms of a convention on the protection of investments that could improve market access for German investors. An adjusted bilateral agreement between Germany and China has been in force since 2005", explains Otto.

The development of private and public debt in China remains a risk factor. Against the backdrop of the moderate inflation rate of 3.1 per cent (December 2013, IMF data), the majority of respondents expect the interest rates on credits to rise only slightly in the coming months. However, none of the executives has predicted a significant reduction in debt.

The survey for the first quarter of 2014 of the ZEW-PwC Indicator of Economic Sentiment China was carried out between 27 January 2014 and 5 March 2014 and included 50 executives from German enterprises in China. The sentiment indicator reflects the executives’ expectations concerning the macroeconomic development over the next twelve months, trends in trade and investment, and the development of individual sectors over the next six months. 

For further information please contact

Dr. Gunnar Lang, Phone +49(0)621/1235-372, E-mail lang@zew.de