JETRO polls the companies to measure year-on-year changes, expressed as diffusion indices, in their business outlooks for the current month and the next two to three months going forward.
Overall current business sentiment for the five ASEAN countries included in the survey declined 5.7 points over the previous month, with the index remaining in negative territory for the tenth straight month in September. Individual indices remained in negative territory for all countries with the exception of Singapore.
Overall forward business sentiment for the ASEAN region improved 1.4 points in this month's survey, although the index remained in negative territory. Notable gains were recorded in the Philippines, where the index returned to positive territory, and Indonesia, which recorded a dramatic 15.6 points (although remaining in negative territory) in this month's survey, on the back of a buoyant transport equipment industry.
Overall current business sentiment for China and North Asia continued solid, improving 2.7 points over the previous month in September. By location, the index for the Republic of Korea (ROK) fell into negative territory (now at -18.5) for the first time in 18 months, due to depressed economic sentiment in the country, rooting from the national current account dipping into red ink for the first half of this year. Current sentiment for mainland China and Hong Kong continued strong; the individual index for mainland China improved 4.6 points to 19.1, while the index for Hong Kong improved 4.3 points to 18.9.
Overall forward business sentiment for China and North Asia declined 5.1 points in this month's survey. Forward indices for mainland China and Hong Kong remained strong, while that for ROK continued to fall (now stands at -26.3)
JETRO included a supplemental question in the September survey asking about the negative impact (if any) of rising labor cost on business sentiment for this month and the next two to three months going forward. Overall, respondents linking rising labor costs to falling current sentiment was 37.9%, while 46.4% expected negative impact from labor cost rises for the next two to three months. By country and region, a higher percentage of firms in China and North Asia (compared to those in the ASEAN region) cited negative impact from rising labor costs; respondents linking labor cost rises with falling current sentiment were 38.7% in China and North Asia and 37.4% in the ASEAN region. Firms expecting negative impact from rising labor costs over the next two to three months were 49.2% in China and North Asia and 44.5% in the ASEAN region.
A total of 770 replies were received in ASEAN countries (140 in Indonesia, 110 in Malaysia, 192 in the Philippines, 215 in Singapore and 113 in Thailand), 215 in China (49 in the North, 58 in the Northeast, 72 in the East and 36 in the South); 138 in Hong Kong; 38 in the ROK and 113 in Taiwan.
JETRO, in cooperation with Japan's Ministry of Economy, Trade and Industry, has been conducting the survey in the first week of every month since June 2001 in the five major ASEAN countries, since June 2002 in South China, Hong Kong and Taiwan, since July 2002 in North and East China, and since October 2002 in the ROK and Northeast China. Results for the ROK are broken down into manufacturing and non-manufacturing only, but not by industry, and no breakdown is given for Northeast China, due to the small numbers of companies surveyed in these areas.
The aim of the survey is to provide up-to-date information on business conditions in the Asian economy to help companies develop more effective business strategies. Firms are asked to compare earnings prospects, supply and demand, inventory, sales prices and accounts receivable with the same period one year earlier. The current month and the following two to three months are evaluated separately in each question. Replies are limited to "better," "same" or "worse" than a year earlier. The diffusion index is the difference between the ratio of positive ("better") and negative ("worse") responses.
Current Business Sentiment
1. Business sentiment in September among Japanese companies operating in Asia showed negative figures for 10 consecutive months in ASEAN as a whole. In Indonesia, however, there was a rise in the DI due to an improvement of business sentiment in transportation machinery. Business sentiment among Japanese companies in China was steady, but the business sentiment outlook in China and South China showed negative figures, due in part to the effects of rising wages.
ASEAN 5
The September DIs showed negative figures for the tenth consecutive month in ASEAN as a whole, at -5.7 (from -5.6 in August to -5.7). Looking at the DIs by country, we see that Singapore (from 15.7 in August to 15.4) continued at a favorable level, but the other four countries remained in the negative range.
The outlook DIs for two to three months ahead showed the Philippines rising above zero and Indonesia, though still below zero, showed a significant rise of 15.6 points relative to September. ASEAN as a whole showed a rise of 1.4 points (from -5.7 in September to -4.3).
·Signs of Recovery in Transportation Machinery in Indonesia
The overall DIs for Japanese companies operating in Indonesia in September showed negative figures for the eleventh consecutive month, but there was a rise of 8.9 points over the previous month (from -46.0 in August to -37.1). Transportation machinery in particular rose 32.8 points over the previous month (from -90.0 in August to -57.2). The effects of this on business sentiment cannot be ignored, since transportation machinery companies make up 15% of the responding companies in this country. These include motorcycle manufacturers, which have the largest market share in ASEAN, with figures showing a conspicuous increase.
2. An additional question was placed in the survey, asking whether the companies noticed the impact of rising labor costs on current business sentiment and the outlook (two to three months ahead). Overall, the percentage of companies responding "Yes, we do" notice an impact came to 37.9%, and the percentage responding similarly for the outlook came to 46.4%.
Looking by region, the percentages of companies responding "Yes, we do" notice an impact and "Yes, we most likely will" notice an impact in two to three months in China and North Asia totaled 38.7% (present impact) and 49.2 % (impact was likely). These were both higher than the corresponding figures in ASEAN ("Yes, we do" at 37.4% and "Yes, we most likely will" at 44.5%).
China and North Asia
The September DIs showed a rise of 2.7 points over the previous month for China and North Asia as a whole, at 8.3. The DIs are continuing to maintain a steady level (from 5.6 in August to 8.3). Looking by region, we see that the Republic of Korea fell into the negative range for the first time in a year and a half, at -18.5. This was influenced by sluggishness in the economy, including the current account deficit recorded for the first half of this year. Meanwhile, China rose 4.6 points over the previous month to 19.1, and Hong Kong also sustained favorable figures at 18.9 (a rise of 4.3 points). Although the outlook DIs for two to three months ahead show China and Hong Kong continuing to hold steady, the absolute value of the negative figures for the Republic of Korea expanded (-26.3), while China and North Asia as a whole declined 5.1 points (8.3 in September to 3.2).
·South China Region Outlook DIs Drop Below Zero
Business sentiment for China as a whole maintained a steady level, but the outlook DIs for South China fell into the negative range (11.1 in September to -8.4). Many of the Japanese companies in this region are labor-intensive, with processing on commission as their main business. The following matters have been identified as relevant: (1) The minimum wage was raised 14-20% in Guangzhou, Dongguan, Zhuhai, and other cities from September 1; (2) improvement of the social security system has brought more rigorous monitoring of tax payments, which used to be lax in this region; and (3) the Labor Contract Law, which is scheduled for enactment, will clearly strengthen protection of workers rights, for example by requiring advance notification to the labor union when a labor contract is terminated. This is having a psychological impact on businesses.
2. An additional question was placed in the survey, asking whether the companies noticed the impact of rising labor costs on current business sentiment and the outlook (two to three months ahead). Overall, the percentage of companies responding "Yes, we do" notice an impact came to 37.9%, and the percentage responding similarly for the outlook came to 46.4%.
Looking by region, the percentages of companies responding "Yes, we do" notice an impact and "Yes, we most likely will" notice an impact in two to three months in China and North Asia totaled 38.7% (present impact) and 49.2 % (impact was likely). These were both higher than the corresponding figures in ASEAN ("Yes, we do" at 37.4% and "Yes, we most likely will" at 44.5%).
