The impact of coronavirus has sent shock waves across global markets with Chinese private businesses struggling to stay afloat. In February 2020, Cheung Kong Graduate School of Business' (CKGSB) Business Conditions Index (BCI) has fallen to a shocking all-time low of 37.3 from 56.2 just the month before. The BCI is widely followed as a key indicator of Chinese executives' sentiment on China's macroeconomic environment.
This month's data shows that sales and profit forecasts have plummeted. Companies lack business, or have not yet resumed work and therefore have no revenue. There is a reliance on warehoused goods as companies cannot produce new goods. Labor and overall costs have fallen which could lead to deflation. This month's investment and recruitment indices, which have stayed relatively high for a long time, fell to around 43 this month. Companies are no longer considering expansion as they have in the past. Instead, they are expecting contraction, which usually leads to economic downtown.
Since December 2019, an outbreak of a novel coronavirus has stopped China in its tracks. This month's BCI survey includes an additional four questions about the outbreak. 45% of companies surveyed have been unable to resume work. The return of employees is directly related to the epidemic as well as preventative measures put in place by the government. Most importantly, most companies believe they will not be able to get back up to speed by the end of February. 61% of companies believe their production capacity will not recover more than 60% by the end of the month.
Professor Li states, "We were psychologically prepared for poor results to this month's CKGSB BCI, but the actual figures are worse than we had imagined. This month's BCI reached a historic low, reflecting the extreme pressure faced by Chinese companies. To save the economy, there is an urgent need to improve China's business climate."
About CKGSB's Business Conditions Index
In June 2011, the Cheung Kong Graduate School of Business Case Center and the Center for Economic Research initiated a project to gauge the business sentiment of executives about the macro-economic environment in China – called an index of business conditions. The CKGSB Business Conditions Index is a set of forward-looking, diffusion indices. The survey asks roughly 300+ senior executives of companies whether their main products are for consumers or non-consumers, and then asks how they think product prices will change in the next six months.