Current Sentiment Gloomy, Outlook Uncertain

Insights for What’s Ahead

China CEOs of western Multinational Corporations (MNCs) active in China (“China CEOs”) surveyed by The Conference Board have a pessimistic view of business and economic conditions in China both now and in the coming months, according to a newly launched measure of confidence for the country. The Conference Board Measure of CEO Confidence™ for China for the first half of 2022 is 34. The measure ranges from 0 to 100. A reading below 50 points reflects more negative than positive responses.

• Sentiment regarding current conditions near rock bottom. The views of the China CEO group, which included 30 respondents to our initial survey are especially negative on present business conditions in China, with nearly all respondents saying conditions have deteriorated compared to six months ago and 40 percent saying they are substantially worse. The current COVID resurgence and associated lockdowns, the war in Ukraine, the ongoing property sector downturn, policy uncertainty, and persistent downward pressure on the RMB are all weighing heavily on CEO sentiment. Short-term expectations regarding employment, sales, and investment in China are all negative, with the outlook for sales being the most pronounced. Only 27 percent of respondents expect sales to improve six months out.
• Despite the negative outlook, expanding production in China remains a strategic focus. Only 17 percent of the China CEOs say that reshoring to their home regions (US and/or Europe) to take advantage of new policies/investment incentives is underway, with none having actually done so yet. Meanwhile, increasing capacity in China remains an important strategic focus. Sixty percent of China CEOs say they have invested, or have plans underway, to expand production capacity in China.
• No retreat from Taiwan-based supply chains. Despite growing concerns among the global business and policy communities about Ukraine corollaries vis-à-vis Mainland China and Taiwan (see China Center assessment of the Taiwan/Ukraine/China nexus), The MNC CEOs surveyed in China are not currently planning to shift supply chains away from Taiwan. Only 3 precent say that a reduction in supply chain exposure in Taiwan is underway. This implies business doesn’t yet see any alternative options regarding semi-conductor sourcing.
• Many are passing on higher prices to consumers/end users. Passing part of rising input costs to consumers is already done or underway, according to 60 percent of the China CEO group. Only 20 percent say passing on price increases are not part of their strategy. Opinions are split on whether producer price pressures should be absorbed into profit margins: Forty percent of respondents say they are planning to do so, but 47 percent say they are not.
• Increasing ESG visibility across supply chains. Addressing environmental, social, and governance related supply chain challenges ranks highly on the agendas of the China CEO group. More than 80 percent of respondents say they have either increased or are planning to increase the ESG visibility of their lower-tier supply chains. Strong central policy focus on pollution control, decarbonization, and social rebalancing are key drivers for this.