DBS RMB Index for Winning Enterprises fell slightly to 59.5 | 繁體

Business needs and usage of RMB products remained stable but are tipped to decline in the short run

The most pessimistic business outlook in three years with 40% expect deterioration in business performance

Recent RMB depreciation did not have an immediate impact on business needs for RMB and RMB product usage
Business needs for RMB is a key indicator of actual RMB acceptance and usage levels at the corporate level. The use of RMB customer orders/invoices/trade settlements in the last 12 months remained stable, despite the recent one-off devaluation of the RMB on 11 August 2015 and the subsequent depreciation that followed in the survey period between 4 August 2015 and 8 September 2015. This can be explained by the time-lag in business decisions.

In 3Q 2015, some 29% of respondents said they had RMB customer orders/invoices in the past 12 months, compared with 30% in the previous quarter. The use of RMB trade services was stable at 4%, compared to 5% in 2Q 2015. The percentage of companies using RMB products slightly fell to 28% from 30% in 2Q 2015.

Looking ahead, the use of RMB products is generally expected to fall further on the mainland’s economic slowdown. While 37% of respondents said they would use RMB customer orders/invoices/trade settlement in the next 12 months, more respondents (9%) expect a decrease in usage, compared to 7% in 2Q 2015 and 2% in 1Q 2015. Respondents cited the decrease in customer orders from the mainland and the economic slowdown as key factors affecting their decision to decrease usage for the aforementioned purposes in the next 12 months.

Worsened business performance and pessimistic business outlook 
Companies’ business performance has worsened. In 3Q 2015, 40% of respondents claimed that that their business performance slowed down in the past 12 months, versus 32% in 2Q 2015. Wholesale, retail and community, social, and personal services sectors reported deterioration in their business performance, citing economic slowdown as the main reason.

The business outlook for the next 12 months was the most pessimistic in three year, or since 4Q 2012 when DRIVE was initiated. Some 40% of respondents believing business performance will worsen, versus 28% in the previous quarter. As much as 16% of respondents believe business will slow down by over 10%.

The manufacturing sector fared worst, with 65% of the respondents expecting declines. Some 55% of the respondents in the wholesale sector also expected business to slow down. Surprisingly, the retail sector was relatively optimistic, with over 13% expecting improvement in business performance over the next 12 months. This may be due to expectations that rentals may come down, rather than fundamental improvement in consumer demand.

Lily Lo, Assistant Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “Broadly speaking, short-medium term risks in the Hong Kong economy are higher than they have been in the past few years. The retail market contraction is expected to continue amid a strong HKD, China’s slowdown, and the ongoing anti-corruption campaign. All these are multi-year factors. Meanwhile, residential property prices may have reached their peak after more than doubling since the global financial crisis. Although a sudden collapse is unlikely, orderly adjustments would still negatively impact consumer and investor sentiment.”

“In terms of factor cost adjustments, retail rents are already coming down, which may explain retailers’ relative optimism, compared to other industries. However, labor costs may adjust more slowly and mildly in comparison. As such, a slew of other sectors, such as business services, import/export, manufacturing and wholesale, remain pessimistic,” Lily Lo said.

Local companies expect RMB to depreciate by 2% or more in the next 12 months
Over half (51%) of the respondents believed that RMB will continue to depreciate against the USD in the next 12 months, compared with only 20% in 2Q 2015. Some 44% expect the RMB to depreciate by 2-5%.

Nathan Chow, Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said: “The CNY may resume its depreciation after the IMF makes its decision on the SDR, most likely in November.”

“Fundamentally, markets are not confident that that China can resolve the “impossible trinity” problem (fixed exchange rate, free flow of capital, independent monetary policy). Doing so requires bold action and clear communication. Today, the real effective exchange rate (REER) of the currency is over-valued and there are grounds for depreciation. This needs to be communicated clearly if authorities decide to allow markets to weaken the exchange rate. The clock is ticking, sentiment is weak and foreign reserves are falling rapidly from the peak of USD 3.99 trillion in June 2014 to 3.51 trillion in September 2015. Resolving the impossible trinity is difficult against the backdrop of a fragile global environment, a cyclical downturn in China and immense challenges from the structural transition,” said Nathan Chow. 

DBS RMB Index for VVinning Enterprises (DRIVE) offers a strategic tool for policy-makers, businesses and investors to track the actual usage and acceptance of RMB among Hong Kong companies as well as their sentiment towards future RMB adoption. DBS releases the findings of DRIVE on a quarterly basis. Fieldwork for the 3Q 2015 survey was conducted through telephone interviews with the business owners and decision makers of over 200 companies in Hong Kong.

Attachments:

1. DBS RMB Index for VVinning Enterprises (DRIVE) 3Q 2015 presentation deck
2. DBS RMB Index for VVinning Enterprises (DRIVE) 3Q 2015 research report

Photo Captions

Photo 1: DBS RMB Index for VVinning Enterprises (DRIVE) fell slightly to 59.5 in 3Q 2015. Nathan Chow, Vice President and Economist, and Lily Lo, Assistant Vice President and Economist from Group Research of DBS Bank (Hong Kong) Limited hosted the DRIVE press conference today.

Photo 2: Lily Lo, Assistant Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, said “The retail market contraction is expected to continue amid a strong HKD, China’s slowdown and the ongoing anti-corruption campaign.　All these are multi-year factors.”

Photo 3: Nathan Chow, Vice President and Economist, Group Research, DBS Bank (Hong Kong) Limited, expect CNY to resume its depreciation after the IMF makes its decision on the SDR, most likely in November.

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