JPMorgan reports decline in China's business sentiment

Sharp drop in Feb index reflects banking, energy sector difficulties

China's economic growth momentum has weakened sharply in February, reflecting seasonal factors and a deterioration in confidence in the banking and energy sectors, according to JPMorgan Chase & Co.

It's Research Analyst Sentiment Index, a leading indicator tracking aggregate company-level performance, registered a sudden drop to 39.4 in February from 57.2 in January.

Any reading above 50 means a positive outlook in the macroeconomic environment, while below 50 indicates a pessimistic overview.

The latest data - calculated based on the similar methodology used for regular Purchasing Managers' Indexes - showed that company outlooks for both production volumes and business earnings were lower, after five straight months of rising optimism.

Zhu Haibin, JPMorgan's chief economist in China, said that a marked deterioration in confidence was reported in the banking industry largely because of a weaker risk-reward balance in the sector.

The energy industry also weighed heavily in the Sentiment Index after experiencing a large deterioration in confidence during February, said Zhu.

"Other industries more sensitive to seasonal factors, such as transportation, machinery, and metal and mining, deteriorated too," he added.

The February decline in the Sentiment Index - first launched by JPMorgan in August 2012 - is in line with a similar drop in the preliminary reading of a PMI released on Monday by banking giant HSBC Plc, which tracks China's manufacturing sector.

That showed growth in February pulled back from two-year highs despite racking up a fourth consecutive month of expansion.

The HSBC flash PMI for February slipped to 50.4 from January's final reading of 52.3, the best showing since January 2011. Its final data is expected to be released on March 1.

However, Zhu said that the eventual manufacturing PMI from HSBC could well remain steady in February, as sentiment for consumption sectors such as the auto and healthcare industries, continued to improve.

"We expect the cyclical recovery in the Chinese economy to continue in 2013," said Zhu.

"It continues to benefit from the policy easing, the housing market recovery, the turnaround of the destocking process and a moderate global recovery."

JPMorgan also predicted China's economic growth is likely to accelerate this year to 8.2 percent, compared to 7.8 percent last year.

Wang Tao, the chief Chinese economist with Swiss banking giant UBS AG, added that as the economy recovers, inflation and further property prices rise may push the government to start to tighten its credit policy.

"Concerns about over-investment and the financial sector are rising," Wang said.

Contact the writer at chenjia1@chinadaily.com.cn