SEB : SEB's China Financial Index: Slightly worsened business climate and lower profit expectations - but expansion plans

  SEB : SEB's China Financial Index: Slightly worsened business climate and
            lower profit expectations - but expansion plans remain

China's economy has continued to slow down during the first half of 2013. New
political leaders in Beijing have communicated that they will accept lower but
more qualitative growth than previously, driven to a greater degree by
consumption and less by investments and exports. In July and August, economic
data indicated a bottoming out of the Chinese downturn. Only one-third of top
managers at North European companies in China have a positive view of the
market and profit expectations in the region, while slightly more companies
than previously, around 15 percent, have a negative view on the coming six
months. All parameters in SEB's China Financial Index - business climate,
profit expectations, investment plans and recruitment plans - are slightly
lower, and the index falls to 58 in September from 60.8 in March.

The percentage of surveyed companies that see lower customer demand as a main
concern has fallen to just below 40 percent. Meanwhile, one out of three
companies view competition as their largest worry, double the number in the
previous survey in March. Expansion plans in China have fallen slightly, but
companies continue to invest. Six out of ten respondents plan further
investments. 15 percent of companies plan significant investments, which is
the same number as in March. Four out of ten companies plan further
recruitments, which is slightly lower than in the last survey. Ten percent of
the companies plan to decrease the number of staff in China.

"Optimism among companies has fallen slightly since the last survey, but the
index is still stronger than it was one year ago. It is evident however that
forecasts have become less certain than in March. Expansion plans are still
offensive, but more companies than previously are choosing to wait with
further investments. Many manufacturing companies suffer from over-capacity in
China and are taking the oppurtunity to make their organisations more
cost-efficient, which is probably why more companies are waiting with further
recruitments or, in certain cases, are even cutting down the number of
employees. We do see large differences between industries however," says
Fredrik Hähnel, Head of SEB in Shanghai and author of the report.

Even if the Chinese economy grew faster than other leading economies, the
country has experienced slowing growth in nine out of the last ten quarters.
Growth for the second quarter 2013 ended at 7.5 percent, a bit lower than the
7.7 percent rate in the first quarter. However, economic signals like
industrial production, exports and purchasing manager indices have been
improving in July and August, indicating that the economy is turning upward.

Mixed signals in China make North European companies slightly less optimistic
about the future in the region. Around one-third of respondents now have a
positive view of the coming six months, whereas the number of companies with a
negative view has gone up from 10 percent to 15 percent. Half of the companies
have a neutral view. Slightly less than half of the companies expect profits
to increase, which is a marginal decrease from the last survey. Very few
companies believe that profits will fall in the coming six months.

"The picture is very much in line with what we experience in discussions with
clients. This is by no means a dramatic change but rather a gradual adjustment
of expectations as more companies realise that China's growth will be lower
than what we have been used to in the last couple of decades. Generally
speaking, companies are positive about the future in China, expecially those
selling to the Chinese consumer market. At the same time, it can be concluded
that certain industrial companies are witnessing flat sales, or in some cases
even lower sales in 2013 compared to the previous year," says Fredrik Hähnel.

Thirty-three percent of respondents see lower customer demand as a main
concern, which is slightly lower than in the last survey. Around one-third
view competition as their largest concern, which is twice the number seen six
months ago. Other important issues are a complex regulatory system and lack of
qualified staff.

"When growth in many industries is not as high as previously, the competition
for market share becomes increasingly important. Particularly in sectors with
over-capacity, we will see pressure on margins for a foreseeable future, and
among Chinese companies there will be consolidation," says Fredrik Hähnel.

Half of respondents believe that the renmimbi will remain unchanged against
the US dollar. Six out of ten companies anticipate stable interest rates.
Salary increases are down. One-third of the companies expect salaries to
increase by 5-6 percent in 2013 while only two out of ten companies calculate
with a salary increase of 9-10 percent or more.

"A slightly less certain business climate combined with low inflation mean
that companies see an opportunity to hold down salary increases in their
Chinese subsidiaries. It remains to be seen, however, if it will be possible
to hold down salary increases in reality without losing staff, as many Chinese
employees have gotten used to large annual salary increases," says Fredrik
Hähnel.

This is the tenth edition of SEB's China Financial Index, a unique semi-annual
survey. The purpose is to mirror changes in expectations among North European
companies in China in order to facilitate understanding of economic and
financial development in the country. The survey was carried out from 26
August - 5 September, and includes a total of 12 questions related to the
business climate, investment plans, recruitment plans and the view of
currencies and interest rates. An index level over 50 signals overall positive
sentiment. The full report can be downloaded from: www.sebgroup.com\press.

For further information, please contact       Presskontakt
Fredrik Hähnel, Head of SEB in Shanghai       Anna Helsén, Press Officer
+86 1381 680 99 77                            +46 70-698 48 58
fredrik.hahnel@seb.se                         anna.helsen@seb.se
SEB is a leading Nordic financial services group. As a relationship bank, SEB
in Sweden and the Baltic countries offers financial advice and a wide range of
other financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The
international nature of SEB's business is reflected in its presence in some 20
countries worldwide. On June 30, 2013, the Group's total assets amounted to
SEK2,596 billion while its assets under management totalled SEK1,387
billion. The Group has about 16,000 employees. Read more about SEB at
www.sebgroup.com.

China Financial Index Sep 2013
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