Confidence dropping but it's still positive

By Wang Yanlin  |   2008-7-9  |     NEWSPAPER EDITION

CHINA'S business confidence index dropped to 134.8 in the second quarter, down 5.8 points from the first three months and 8.3 points from a year earlier, the National Bureau of Statistics said yesterday.

Entrepreneurs in industries such as mining and information technology reported stronger confidence, with the indexes standing at 169 and 159.2 respectively. The real estate and social service sectors indexes were at 118.4 and 123.1.

Overseas entrepreneurs reported a confidence index of 139.5, the highest among state-owned enterprises, shareholding companies and private businesses.

The index, ranging from zero to 200 and based on a survey of 20,000 entrepreneurs, signals positive business confidence when it is above 100 and strong business confidence when it is above 150.

"The drop of the index has a close link with the rising costs of raw materials, as well as uncertainties over the government's macroeconomic policies," said Li Maoyu, an analyst with the Changjiang Securities Co. "But it remains in the positive range."

China has raised the reserve requirement ratio to a record high of 17.5 percent in June to tame inflation. But central bank Governor Zhou Xiaochuan does not rule out the possibility of an interest rate increase. Concerns that the fight against inflation may hurt economic development have prompted some economists to suggest no more tighter credit controls for the rest of the year.

Meanwhile, factory-gate inflation shows no sign of easing. In May, China's Producer Price Index jumped to 8.2 percent, the highest in more than three years.

The global crude oil price has nearly doubled from a year ago.

However, the country's business climate index from April to June rose 1.2 points from the previous quarter to 137.4, showing improved conditions for future development.