Xinhua Finance/MNI China Business Survey: Sentiment Falls

Xinhua Finance/MNI China Business Survey: Sentiment Falls

June 23, 2006

    SHANGHAI, China, June 23, /Xinhua-PRNewswire/ -- Xinhua
Finance (TSE Mothers: 9399) and Market News International
(MNI), a part of the news service line of Xinhua Finance,
today announced the second-quarter Xinhua Finance/MNI China
business sentiment survey. The results of the survey
suggested that government efforts to slow the economy after
scorching first-quarter growth have sharply curtailed the
expectations of Chinese businesses.

    The survey was completed June 5-19 with 160 listed
companies responding. A result greater than 50 implies
growth or improving conditions. (See accompanying story for
more on the survey methodology).

    The full survey results can be found at
http://www.xinhuafinance.com/en/main/chinabizsurvey.html.

    After improving markedly in the first quarter, the
survey shows expectations for future orders, production and
business conditions falling across the board in the wake of
government moves to slow an overheating economy.

    Chinese companies still expect production, new orders,
overall business conditions and most of the other factors
measured by the survey to rise. But their expectations for
the pace of growth have fallen, in the case of production
capacity to the lowest index levels recorded in the
survey's history.

    The index for expectations of overall business
conditions in three months fell to 74.65 in the second
quarter from 85.14 in the first quarter. The index for
future production fell to 76.1 from 83.33 in the first
quarter while the index for future new orders fell to 74.61
from 85.43 in the first quarter.

    Most of the indexes showing current conditions were
down from the first quarter survey, although not as sharply
as those of the indexes reflecting expectations of
conditions in three months.

    The index for current production fell to 71.69 in the
second quarter from 78.89 in the first quarter while the
index for current new orders fell to 75.78 from 78.35. The
index for current overall business conditions fell slightly
to 72.22 from 73.91 in the first quarter.

    The indexes for production capacity, both for current
conditions and future expectations, fell to the lowest
levels since the survey started in the first quarter of
2005. The index for current production capacity fell to
65.63 in the second quarter from 73.91 in the first quarter
while the index for production capacity in three months
dropped to 70.83 from 77.90 in the last survey.

    The results suggest that businesses expect government
efforts to slow the economy will affect their business and
may already be affecting their planning.

    First-quarter data showed GDP grew at 10.3%, urban
fixed asset investment grew 27.7% and bank loans rose 70%
year-on-year to 1.26 trillion, already half of the
government target of 2.5 trillion for the full year.

    The government responded by raising benchmark lending
rates by 27 basis points on April 27 and hiking the reserve
requirement for banks by 0.5 percentage point last Friday.
It also has also been using targeted money market
operations to penalize banks it sees as having loaned more
than appropriate in the first quarter.

    Expectations for future interest rates rose sharply, to
62.78 in the second quarter from 51.17 in the first.

    The government moves came after more than a year of
warnings about the possibility of overheating in some
sectors, combined with administrative and other measures
aimed at slowing those sectors.

    Past government efforts to tighten credit through
administrative measures were at least partially offset by
the People's Bank of China's deliberate easy money policy
which was instituted last year to prepare the financial
system for that summer's currency reforms.  

    Despite stepping up sterilization operations and an
aggressive campaign to engineer interbank lending rates
higher, data have been showing liquidity continuing to
rise.

    Some companies responding to the survey say the
fluctuating value of the yuan is already affecting their
operations or is expected to affect them in future. The
yuan has risen about 3.4% since the government removed its
peg to the dollar last summer.

    Said one maker of electric equipment: "The
appreciation of the (yuan) will make exporting more
difficult."

    A medical equipment maker complained that "the
fluctuation of exchange rates is having some impact on our
exports."

    While Chinese exports have continued to rise, the
People's Bank of China has warned that companies are not
adjusting to increasing volatility in currency rates as
well as they should.

    The next survey will be released in three months.

    Xinhua Finance/MNI China Business Survey MethodologyThe
Xinhua Finance/MNI China Business Sentiment Survey was
conducted June 5-19 with 160 companies taking part.

    Survey questions were modeled on Japan's Tankan survey
and the U.S.Institute for Supply Management's Report on
Business.

    Results were compiled for both current conditions
compared with a month ago and for expectations of
conditions three months ahead.

    Indexes were compiled using the Institute for Supply
Management's example: adding half of the percentage saying
conditions were unchanged to the percentage of those saying
conditions had improved generated the index. Therefore, a
result higher than 50 indicates a net positive response.

    Companies agreed to participate in the survey, and to
provide comments about business conditions, under the
assurance that individual survey responses would not be
divulged except as part of the overall results.

    Companies surveyed were all listed on domestic stock
markets or in Hong Kong, although some also have foreign
listings. The companies chosen were a mix of manufacturers
and non-manufacturers with about 75% of the companies
responding to the survey in manufacturing.

    The next survey will be released in three months.

    About Xinhua Finance Limited 

    Xinhua Finance Limited is China's unchallenged leader
in financial information and media, and is listed on the
Mothers board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY). Bridging China's financial markets and
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and
complementary service lines: Indices, Ratings, Financial
News and Investor Relations.  Founded in November 1999, the
Company is headquartered in Shanghai with 21 news bureaus
and offices in 18 locations across Asia, Australia, North
America and Europe.  

    For more information, please visit
http://www.xinhuafinance.com.

    For more information, please contact:

    Xinhua Finance
    Hong Kong/Shanghai
     Ms. Joy Tsang
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    Taylor Rafferty (Media/IR Contact)
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SOURCE  Xinhua Finance Limited; MNI