At the start of 2016, business sentiment in China presents a mixed picture. While confidence among large companies has slightly declined, smaller businesses are expressing optimism, according to separate reports from MNI Indicators and CPA Australia.

The MNI China Business Sentiment Indicator dipped to 52.3 in January, down from 52.7 in December. Although this still indicates expansion for the second consecutive month, it marks the first month-over-month decrease since November. Businesses have also tempered their future expectations, as reflected in the Future Expectations Indicator’s 0.9% drop to 52.6 in January.

However, this moderation in overall sentiment doesn’t tell the whole story. The survey revealed improvements in key areas like Production and New Orders, both of which rose in January after a December decline. These indicators had weakened throughout 2015 due to weak demand and excess capacity. Encouragingly, businesses are more optimistic about the upcoming quarter, with expectations indicators for both areas showing faster growth.

The effects of monetary easing measures seem to be taking hold. Businesses indicated a further drop in interest rates paid, reaching their lowest point since March 2009. Additionally, the Availability of Credit Indicator inched closer to expansion territory. Despite this easier lending environment, deflationary pressures persisted, with the Prices Received Indicator remaining below the 50 breakeven point for 18 consecutive months, registering at 41.6 in January.

The recent depreciation of the yuan has provided some relief to businesses. The January survey revealed that most companies were positive about the impact of the exchange rate on their operations. This is reflected in the Effect of the Yuan Exchange Rate Indicator, which climbed to 53.6 in January from 52.7 in December, marking its second consecutive monthly increase.

The Employment Indicator fell to 49.3 in January, down from 50 in December. Both the manufacturing and service sectors experienced this decline, with the service sector showing a more pronounced drop.

Philip Uglow, Chief Economist of MNI Indicators, acknowledged the concerns surrounding China’s economy but highlighted some positive takeaways. He stated, “Volatility in financial markets has once again centred attention on China with a renewed lack of confidence in the ability of Chinese policymakers to contain some of the growing risks including capital outflows. While there are heightened risks, overall sentiment among businesses remained relatively resilient in January, with output and orders measures actually ticking higher. Alongside more positive readings from our consumer survey, it points to a more optimistic, or at least less pessimistic outlook, than current doom laden headlines.”

In contrast, the CPA Australia Asia-Pacific Small Business Survey revealed a positive economic outlook among Chinese small businesses. These businesses are focusing on innovation, e-commerce, and social media as key drivers of growth.

The survey, conducted annually by CPA Australia, gathered insights from nearly 3,000 small businesses across the Asia-Pacific region, including mainland China.

CPA Australia Chief Executive Alex Malley highlighted the strength of China’s small business sector, stating that confidence levels are higher than last year and are expected to remain strong.

Malley stated, “We surveyed small business operators in Beijing, Shanghai, Guangzhou and Chongqing. The results show that China’s small businesses have had a successful 12 months, with 77% of respondents reporting that they grew over this period.”

He continued, “Looking to 2016, the results are even more positive, with 78% of small businesses expecting to grow in the year ahead. Confidence in China’s economy is also very high, with 71% of respondents expecting the economy to grow in 2016.”

This positive outlook is translating into job creation, with 43% of Chinese small businesses reporting an increase in employee numbers over the past year.

Malley further noted that Chinese small businesses are embracing innovation, with 32% of respondents anticipating the introduction of new products, services, or processes unique to China or the world in the coming year. This figure surpasses the survey average of 22%.

He added, “Small businesses across China are also taking advantage of the large and growing online marketplace and with their nearly universal uptake of social media, are well-placed to out-compete less nimble and tech savvy competitors.”

Malley believes that government initiatives, such as the Belt and Road initiative, the promotion of mass entrepreneurship and innovation, and the Made in China 2025 plan, will further foster a culture of innovation and entrepreneurship among Chinese small businesses. He stated, “The range of initiatives China’s government has implemented or is implementing to encourage growth and innovation, such as the Belt and Road initiative, the promotion of mass entrepreneurship and innovation, and the Made in China 2025 plan should further inculcate a culture of innovation and entrepreneurship amongst China’s small businesses. Such a culture should help drive the next phase of China’s economic growth story.”

Key findings from the survey for China include:

• Nearly all respondents (97%) utilize social media for business, significantly higher than the survey average of 81%.
• Over a third (36%) of respondents anticipate significant growth in their e-commerce presence, surpassing the survey average of 32%.
• A substantial proportion (90%) of respondents generated revenue from online sales, considerably higher than the survey average of 69%.