Xinhua Finance/MNI China Business Survey: Conditions Improve

Xinhua Finance/MNI China Business Survey: Conditions Improve

October 27, 2006

    SHANGHAI, China, Oct. 27 /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 October Xinhua Finance/MNI China
business sentiment survey. The results of the survey
suggest operating conditions for Chinese companies have
improved since the record lows recorded at the end of the
third quarter as the threat of more aggressive tightening
measures from the government recedes.

    The survey was carried out October 9-23 with 141 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 .

    According to the survey, overall business conditions
have turned up slightly, with respondents expecting them to
continue their moderate improvement into next month, while
production levels have also recovered from the record lows
recorded last month. But conditions remain well below the
levels seen during the first quarter of this year, before
Beijing started tightening monetary and administrative
policies.

    The recovery in sentiment in the survey, the first
monthly result for the formerly quarterly offering, follows
a stream of data suggesting that economic activity is
moderating following the series of actions taken by
government departments since the start of the second
quarter.

    The slowdown in key economic indicators such as M2 and
fixed-asset investment, first evidenced in August
indicators but confirmed by those released in the following
two months, has led to a significant downgrading of the
possibility that the People's Bank of China will raise
interest rates for a third time this year before the end of
December.

    As such, interest rate expectations have stabilized
markedly since the last survey, with the index falling back
to 55.64, down from the third quarter's record high of 66.67
but up from the first quarter's 50.00.

    "It seems that businesses believe the first round
of controls was relatively effective in slowing lending
growth, and that further hikes and new tightening measures
are unlikely," said Logan Wright, a Beijing-based
analyst with Stone & McCarthy, a sister company of
Market News International.
         
    "But the survey results also suggest that the
level of activity isn't what it was at the start of the
year, and is unlikely to regain that first quarter
pace."
     
    Although the government has claimed initial success in
bringing economic activity under control, it has also
warned of the risks of rebounding and, as such, is keeping
the pressure on local governments and banks to keep
investment under control.

    That's also reflected in the index measuring the
availability of credit, which fell to a record low in
October of 55.51 from 58.80 recorded in the third quarter
survey. Expectations for credit availability next month
remain unchanged, also standing at 55.51.  

    "The sharp decline in the credit availability
index seems to reflect a growing corporate belief in the
maintenance of government controls on lending and fixed
asset investment," said Wright.  
 
    Nonetheless, corporate finances appear to have returned
to the level approaching that of the first quarter survey,
just before the government announced that it was raising
benchmark lending rates in what marked the opening gambit
in the tightening campaign.  The index measuring companies'
financial positions hit 67.63 in October, up nearly 5 points
on the September reading and not far below the 69.85 seen in
the first quarter.

    The index measuring overall business conditions rose to
68.44, from the 66.99 recorded in the third quarter, while
that measuring expectations for conditions in one month
rose to 71.99.

    The production index bounced back to 68.75 from the
65.85 recorded in the last survey and nearing levels last
seen during the fourth quarter of last year, when the index
stood at 69.08.
           
    Production levels are expected to continue increasing,
with the index measuring future expectations standing at
68.01.

    The improvement in operating conditions was also seen
in indices measuring prices.

    Companies reported that the prices they receive for
their products have recovered slightly -- rising to 55.80
from 53.31 in the last survey -- and are expected to
continue rising moderately next month.

    Input prices have also eased off, respondents reported.
The index fell back to 64.23 last month, down from the last
survey's 66.67.

    Order backlogs are improving again too, after falling
sharply in the third quarter survey, with the index
climbing back to 55.08, a level not seen since the first
quarter.

    The index measuring employment recovered sharply from
the record low of 43.42 hit in the September survey,
bouncing back to 51.43, indicating more companies were
reporting a shortage of workers than were reporting an
excess. That's also just shy of the record high of 51.85
seen in the January-March survey earlier this year.

    But difficulties clearly remain. The index measuring
new orders continued to deteriorate -- even as it remains
comfortably in expansionary territory -- falling to 68.08
from 70.14 in the last survey. That compares with the 69.83
recorded in the survey taken at the same time last year. The
index covering expectations for new orders in a month stood
at 73.08.

    Despite the improvement in production, the index
measuring productive capacity has fallen to a record low of
62.59, suggesting that the growth of productive capacity
slowed. Respondents expect the pace of productive capacity
growth will improve slightly next month, even if the index
measuring future expectations also stands at a record low
of 65.47.

    Xinhua Finance/MNI China Business Survey Methodology

    The Xinhua Finance/MNI China Business Sentiment Survey
was conducted October 9-23 with 141 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 one month 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.

    Notes to Editors:

    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 20 news bureaus
and offices in 19 locations across Asia, Australia, North
America and Europe.  

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

    About Market News International

    Market News International (MNI), a Xinhua Finance
company ( http://www.xinhuafinance.com ), is a financial
news and information company dedicated to the global fixed
income and foreign exchange markets.  MNI joined the Xinhua
Finance family in March 2004, bringing its niche expertise
and extensive distribution network.  Headquartered in New
York, MNI has news bureaus and offices throughout the US,
Europe and Asia.

    With more than twenty years of history, MNI is a fully
accredited news agency providing focused, timely, relevant
and critical intelligence for market professionals.  Its
press credentials are accepted by all operations of the
U.S. Government, including the White House, the Federal
Reserve, both houses of Congress, all major agencies and
cabinet departments, all similar government operations in
the G-7 countries, as well as by supranational
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Monetary Fund.

    For more information, please contact:
 
    Xinhua Finance

    Hong Kong/Shanghai
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[phone]
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    Taylor Rafferty (Media/IR Contact)

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SOURCE  Xinhua Finance Limited; Market News International