Xinhua Finance/MNI China Business Survey: Sentiment Leaps

Xinhua Finance/MNI China Business Survey: Sentiment Leaps

March 24, 2006

    SHANGHAI, China, March 24 /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 first-quarter Xinhua Finance/MNI China
business sentiment survey.  The results of the survey
suggested that Chinese business conditions and sentiment
have leapt ahead after three quarters of relatively flat
conditions. 

    The survey was completed March 6-21 with 140 listed
companies responding. A result greater than 50 implies
growth or improving conditions. (See accompanying story for
more on the survey methodology.)  

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

    Many of the survey indexes assessing current conditions
for the first quarter of this year came close to or topped
the results of the survey from the first quarter last year,
the first and to date most positive result. 

    The index for overall current business conditions was
at 73.91, for example, up from 67.41 in the fourth quarter
of last year and compared with 78.03 in the first quarter
last year.  

    The index for the current state of new orders hit its
highest level yet, at 78.35 compared with 69.38 in the
previous quarter and 75.83 a year ago.  The index
reflecting current order backlogs also rose, to 56.00 from
43.7 in the previous survey and from 49.00 in the survey
from the first quarter last year.  

    The indexes reflecting expectations for conditions
three months ahead were even stronger, with many of them
suggesting respondents are more positive about the future
than they have been at any time since the survey began.  

    The index reflecting expectations for overall business
conditions in three months hit 85.14, its highest level
ever, up from 70.00 in the previous survey and 75.00 a year
ago.

    The index assessing expectations for the financial
state of companies in three months also hit the highest
level yet, at 79.41 compared with 68.56 in the last survey
and 77.27 in the first quarter last year.  

    The survey results fell sharply in the second quarter
last year as government efforts to slow overheating parts
of the economy took hold.  Only some of those measures have
since been loosened while others have been reinforced.  

    But there are signs that the economy has adapted and
worked around the mostly administrative measures put in
place, leaving the government to redouble its efforts in
the last few weeks to stem overheating parts of the
economy. 

    In a harshly-worded statement to provincial governments
and ministries dated March 12 but released in the official
press this week, China's State Council urged the tightening
of controls on new projects to avoid a rebound in
fixed-asset investment and stem over-capacity.  

    The State Council, China's cabinet, urged all
provincial governments and ministries to "accelerate
consolidation in sectors with over-capacity problems,"
saying that overheating sectors and the overcapacity that
has resulted is a "key problem in economic
development." 

    The government's latest attempts to control growth come
amidst other signs that the economy is far from slowing.
China's fixed-asset investment jumped 26.6% year-on-year in
the first two months of this year, which showed little sign
of slowing down and was far above the government target of
18% for 2006.  

    The survey suggests that companies continue to
accelerate production.  The index for current production
reached its highest level yet, at 78.89 compared with 69.08
in the previous quarter and 77.42 in the first quarter of
2005.  

    Expectations for production three months from now rose
to 83.33 from 72.14 in the last quarter, although still
under the 83.87 hit in the survey a year ago.  

    There are a number of possible explanations for the
increasing optimism of the majority of respondents in the
survey, aside from basic business conditions.  

    For one, Chinese companies listed on the stock markets
(as are all respondents in the survey) are overwhelmingly
state-owned enterprises and as such may expect to benefit
from the introduction of the government's latest five-year
plan.    
  
    Analysts say the plan, which attempts to shape the
economy to meet general government goals, tends to result
in money being front-loaded in key areas and on special
projects at the start of the five-year periods covered.  

    Indeed, some of the respondents said they are
encouraged that their companies will benefit from the
latest 5-year plan.   

    "Thanks to the national policy that favors
agricultural development, the group's revenues will be
boosted," said a respondent from a company that makes
agricultural equipment (respondents were encouraged to
include comments with their submissions).  Agriculture is a
key area targeted in the government's latest plan.  

    "The industry outlook is promising as a result of
the (government's) urbanization policy and mechanization of
the agricultural sector," said an official with a maker
of farm and construction equipment.  

    Some companies also suggested that the government's
efforts to stem overcapacity had either proven a benefit to
them already or were expected to in the future, as smaller
competitors were removed from the market.  

    Company officials in the coal, steel and aluminum
industries, all targeted by the government as sectors
seeing overcapacity, said the removal of smaller players
was improving their outlook.  

    "National policies have resulted in the
consolidation of the steel industry, which has resulted in
improvements in (our) profit margins," said an
official at one steel firm.  

    Although the comments from some companies indicated
continued concerns that their costs were rising while their
ability to pass on costs was limited (a key complaint in
past surveys), the overall results suggested the majority
were finding price conditions improving. 

    The index reflecting current prices received rose to
57.25, the highest result since 64.62 in the first quarter
of last year.  The index for expectations of prices
received in three months rose to 60.31, its highest level
yet, from 53.03 in the previous survey.  

    The index for input prices also rose, although not as
dramatically as that for prices received and lower than the
index in the first two quarters of last year.  

    Although the government has attempted to tighten credit
in a series of measures over the last year or so, the survey
results echo official data that show liquidity has continued
to increase.  

    The index for the current availability of credit rose
to 63.49, up from 57.81 in the previous quarter and the
highest result yet.  

    Government efforts to tighten credit through
administrative measures have been at least partially offset
by the effects of its purchase of vast amounts of dollars
flowing into China.  Despite increasing efforts at
sterilizing those purchases by removing larger and larger
amounts of yuan from the system in its money market
operations, data show liquidity continuing to rise.  

    The latest figures for M2 money supply show that growth
hit a near-two year high in January, rising 19.2% over the
same month last year.  

    The survey results may have been affected by seasonal
factors, since the survey is not adjusted for changing
corporate conditions over the course of the year. 

    The next survey will be released in three months.

                                    
    Xinhua Finance/MNI China Business Survey Methodology

    The Xinhua Finance/MNI China Business Sentiment Survey
was conducted March 6-21 with 140 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 three months 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:

    Hong Kong/Shanghai 

     Ms. Joy Tsang
     Xinhua Finance
     Tel:   [phone] or
[phone]
     Email: [e-mail]
    
    Japan
     Mr. Sun Jiong                        
     Tel:   [phone]
     Email: [e-mail]

    Taylor Rafferty (IR Contact)

    Japan
     Mr. James Hawrylak
     Tel:   [phone]
     Email:[e-mail]

    United States
     Mr. David Leeney
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Finance; Market News International