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China businesses fourth in optimism but worry about access to capital and skilled labour

Medium-sized businesses in China are among the world's most optimistic about the economic outlook this year, but they are also worried about access to capital and skilled workers, according to a new survey.

However,  mainland companies also have a rosy outlook for exports, hiring and investment, according to Grant Thornton's annual International Business Outlook Survey, which included China for the first time this year.

The survey, released at the weekend, found Chinese companies were the fourth most optimistic  of 30 countries polled. Medium-sized businesses are defined as ones in which the founder still has a significant influence.

'The economic miracle  China is experiencing is not only benefiting large enterprises but is trickling through to medium-sized companies,' said Grant Thornton managing partner Gabriel Azedo.

The survey, conducted  at the end of last year, asked companies whether they were optimistic or pessimistic about their country's economic prospects over the next 12 months.

The researchers subtracted the percentage-point difference between responses  to calculate the final ranking, or 'optimism balance'. Mainland firms were 79 points more positive than negative.

On the downside, Chinese companies are more worried than average about getting access to capital and finance as well as skilled workers. While 39 per cent of Chinese companies said the cost of finance and a shortage of working capital were big constraints to business expansion, the global average was only about 22 per cent.

A high proportion of companies responded to this part of the survey, illustrating that 'business owners in the country are among the most concerned in the world about constraints on expansion', the report said.

'They are starting to experience some difficulties,'  Mr Azedo said. 'Many of them are experiencing an inability to expand through access to capital. It's causing Chinese medium-sized companies to look outside the country for capital.'

Now that many big state-owned enterprises have successfully listed on stock markets overseas, more  medium-sized companies will start to follow, Mr Azedo said.

'There's an enormous thirst for capital and these companies will go outside China. This is the next growth area,' he said.

Investors should expect companies to seek listings in countries that are home to their key markets, he added.

For example, resource companies would probably  go for initial public offerings in natural-resource-rich countries such as Australia and Canada.

And, while there is still a vast pool of unskilled migrant labour on the mainland, 37 per cent of respondents also worried about the supply of skilled workers - five percentage points higher than the world average.

Executives say they particularly need skilled engineers, architects, accountants and managers with plenty of experience, 'not assembly-line workers', Mr Azedo said. He said most of the shortage  was in the Yangtze River Delta.

'It's amazing that we can talk about China and talk about labour shortages,' Mr Azedo said. '[But these days] people are not prepared to travel 3,000 miles to get a job. There's no need to move. They can get a job in the hinterland.'

Growing domestic competition is also a worry for mainland  firms, with 44 per cent saying they are worried about a shortage of orders, half as much again as the average of 29 per cent.

Surprisingly,  concerns about state regulations and red tape limiting business growth were in line with those of other countries.

Those concerns aside, Chinese medium-sized  firms were generally optimistic about the future, with an 86 per cent balance saying they were optimistic about turnover this year, the highest in the survey.

The respondent firms  were also 49 per cent more optimistic about hiring, 68 per cent more optimistic about profitability and 26 per cent more optimistic about export prospects - one of the highest ratings in the survey.

Mr Azedo said that while India took top place, it  did not mean  China  would lose out.

'While they compete, they're  complementary in some ways,'  he said. '[India's] level of optimism is higher, but not necessarily directed in the same area. India certainly has not gone for the manufacturing side of things the same way China has. India is sort of pulling in a different direction.

'In the area of manufacturing, it's nowhere near as strong as China, but in call centres, [business] outsourcing and the like, they're probably ahead.'

When asked which countries posed the biggest threat to their business interests, few mainland companies bothered responding, but among those  that did, 14 per cent cited the United States, 10 per cent said  Hong Kong,  8 per cent Japan and  5 per cent South Korea.

Among the other places  surveyed, Hong Kong came in  11th  with an optimism balance of 61 per cent, largely unchanged from  last year's 60 per cent. Russia ranked 20th, with a 21 per cent optimism balance,  and Taiwan edged out Japan for last place.

Grant Thornton surveyed 300  firms and plans to expand the   poll next year  to  500 to 600 companies.



Mid-sized firms see rosy future