China's MNI business sentiment edges lower in August, first drop seen in three months

The MNI China Business Sentiment Indicator, a gauge of current business sentiment, fell 2.2 percent to 54.3 in August from a nine-month high of 55.5 in July. A noticeable fall in demand and less favourable credit conditions outweighed a slight uptick in output. The index fell for the first time in three months, but remained above the 50 break-even level for the fifth consecutive month.

Details of the report showed that orders and credit conditions deteriorate but production edges higher. Firms were also less upbeat about the short-term outlook with both expectations indicators expanding at a significantly slower rate. The Future Expectations indicator fell 6.7 percent to 55.8 in August, also the lowest outturn since May 2016.

The less proactive monetary policy stance from the PBOC since the end of Q1 could be starting to have an impact. The Interest Rates Paid Indicator picked up sharply to 49.4, the highest since September 2015, while the Availability of Credit Indicator fell 4.3 percent to 52.9. Furthermore, the future expectations measures for both indicators suggest that companies expect tighter credit conditions.

"Although the current balance of evidence suggests that Chinese firms have continued to withstand the headwinds facing the Chinese economy, the fact that companies are now less optimistic about future business conditions could be read as a warning sign that the growth momentum is likely to wane somewhat in the near term," said Andy Wu, Senior Economist of MNI Indicators.