Deloitte survey shows continued economic pessimism among CFOs in China amid increasing levels of market uncertainty

Published: 9 December 2016

CFOs in China generally remain pessimistic over the economic prospect with concerns fueled by a potential turmoil due to continued economic slowdown and a rising financial leverage. Only 8 percent of CFOs expressed optimism towards the economy, while 54 percent believed there was no change in economic sentiment during the past few months. Compared with Q1 2016, however, CFO sentiment has somewhat turned positive, where 38 percent of CFOs were “less optimistic” when asked about their views about the economy, versus 50 percent previously, according to the latest CFO Survey by Deloitte China.

The CFO survey was conducted in September to October 2016 with the objective of gauging opinions from China CFOs on a wide range of topics, including the strength of the global economy, and the effect of recent political change. The survey included 116 CFOs from a diverse spectrum of industries, spanning manufacturing, consumer business, financial services, technology, media and telecommunications, energy and resources, life sciences and health care and the public sector.

“The global economy has continued to weaken and recent events such as Brexit, global terrorist attacks and the US presidential election have created increased levels of global economic uncertainty for businesses worldwide. With the global economic outlook at 2.6% in 2017, it shows that growth in the most advanced economies will remain low, with slow potential growth and gradual closing of output gaps,” said William Chou, National Managing Partner, CFO Program, Deloitte China.

The report said prospects remain diverse across the emerging markets and developing economies with a few improvements for a couple of emerging economies, namely Brazil and Russia. Aside from economic uncertainty, businesses are also faced with other challenges such as tightened government policy and regulation, increasing competition, inflation, market growth and structures, talent development and pricing trends.

More worrying for Chinese businesses is the depreciation of Renminbi since August 2015, which is expected to continue in the medium term. Renminbi depreciation is also said to have a significant impact on multinational corporations with assets denominated in Renminbi, and business relying on imports and indebted in US dollars will face increasing operational costs. On the other hand, while Brexit has given rise to global economic uncertainty, 82% of participating CFO's commented that Chinese enterprises were not exposed to risks from Brexit and some even reported that they may benefit from Brexit by purchasing assets in the UK.

Commenting on major concerns for businesses, Chou said “SOEs have been unnerved by credit risk as they embark on their global expansion journey. CFOs are having to optimize their financial systems and develop integrated treasury systems in line with business requirements. The survey makes it clear that SOEs need to make strategic decisions in response to the prevalence of information technology in other industries. And multinational corporations are primarily concerned about domestic consumption slowing down.

When it comes to multinational companies, Jens Ewert, MNC Sector Leader, CFO Program from Deloitte China, said “the survey showed that they are most unsettled about the slowdown in domestic consumption in China, followed by challenges from local competition and exchange rate volatility. In that respect, it becomes more important than ever for CFOs to come up with more accurate sales and revenue forecast, along with partnering with business operations to identify the necessary changes and adjustments to business model in response to the rapidly changing market in China."

“All in all, the finance department is one of the core functions within any organization and the importance of finance management will become even more visible when we are faced with economic uncertainty. In that regard, the finance department needs to improve their business persuasion techniques, and coincidentally, influencing business strategy was cited by most finance departments as one of the critical challenges for them,” Chou concluded.

Deloitte's CFO program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead of global challenges and demands. The program aims to cover a wide range of initiatives to help CFOs manage the complexities of their roles, tackle challenges and adapt to changes in the market.