Overall current business sentiment for the five ASEAN countries included in the survey continued on an upward trend in December, improving 2.5 points over the previous month (the index, however, remained in negative territory at –0.5). Individual indices remained in negative territory for all countries with the exception of Singapore in December; improvements were noted in Thailand, Malaysia and Indonesia.
Overall forward business sentiment for the ASEAN region improved 1.9 points in this month's survey, pushing the index into positive territory. Notable gains were recorded in Indonesia, where the index returned to positive territory, and Thailand, where a dramatic 7.4-point jump was recorded (although still remaining in negative territory).
Overall current business sentiment for China and North Asia declined 1.9 points over the previous month in December, with the index continuing on a 3-month downward trend (from 10.0 in October to 6.4 in November and to 4.5 in December). By location, the index for Taiwan recorded its lowest level in three years, while the index for ROK (now at -20.0) remained in negative territory for the fourth straight month.
Overall forward business sentiment for China and North Asia fell into negative territory (-1.3) in December, reflecting declining sentiment in mainland China (where the index fell 10.2 points in December to 12.7) and depressed economic sentiment in both Taiwan and ROK, where indices now stand at -28.7 and -25.7 respectively.
JETRO included a supplemental question in the December survey (the same question included in the September survey) asking about the negative impact (if any) of rising labor cost on business sentiment for the current month and the next two to three months going forward. Overall, respondents linking rising labor costs to falling current sentiment was 38.8% (roughly the same as the September figure). More than half of firms (50.3%) expect negative impacts from labor cost rises for the next two to three months (a 4.0 increase over the September survey). By country and region, Indonesia had the highest percentage of firms in the ASEAN region citing a negative impact from rising labor costs, while Southern China had the highest percentage in the China and North Asia region. More than half of firms in Indonesia (51.5%) link labor cost rises with falling current sentiment, compared to 64.7% in Southern China. And a full 64.4% of firms in Indonesia and 73.5% in Southern China expect negative impacts from rising labor costs over the next two to three months.
A total of 751 replies were received in ASEAN countries (131 in Indonesia, 100 in Malaysia, 196 in the Philippines, 218 in Singapore and 106 in Thailand), 197 in China (39 in the North, 55 in the Northeast, 70 in the East and 33 in the South); 127 in Hong Kong; 35 in the ROK and 101 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 December among Japanese companies operating in Asia was in the negative range for ASEAN as a whole, but is moving toward recovery. The improvement in business sentiment was especially conspicuous in Indonesia. In China and North Asia, business sentiment among Japanese companies in China and Hong Kong was generally favorable. In Taiwan and the Republic of Korea, however, the DI figures reached their lowest levels of the entire past year.
ASEAN 5
The December DIs for ASEAN as a whole were at -0.5, but this represented a 2.5 point rise over the previous month, continuing the upward trend that has been in evidence since October (-3.0 in November to -0.5 in December). Looking at the DIs by country, we see that although all these countries except Singapore have been in the negative range, a rise was apparent in Thailand, Malaysia, and Indonesia.
The outlook DIs for two to three months ahead showed Indonesia rising above zero and Thailand, though still in the negative range, rising significantly by 7.4 points relative to December. ASEAN as a whole rose by 1.9 points and has turned around to show positive figures (from -0.5 in December to 1.4).
· Indonesia Improves Significantly, Buoyed by Transportation Machinery and Expanding Domestic Demand
The overall DI for Japanese companies operating in Indonesia in December was in the negative range. However, the figures were at their highest level since November 2005, and rose 11.7 points over the previous month (-19.3 in November to -7.6 in December). Declining interest rates and easing inflation are contributing to an expansion in private consumption. Transportation machinery showed a corresponding rise of 40.6 points over the previous month (-14.3 in November to 26.3 in December), taking this figure above zero for the first time since October 2005.
2. An additional question was placed in the survey, as it was in September 2006, asking whether the rising labor costs affected 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 38.8%. This is not a significant change from September (37.9%), but the percentage responding similarly for the outlook came to 50.3%, which is a rise of 4 points since September (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 ASEAN were relatively high in Indonesia ("Yes, we do" at 51.5% and "Yes, we most likely will" at 64.4%). Meanwhile, in China and North Asia, the figure for "Yes, we do" notice an impact was 64.7% and for "Yes, we most likely will" was 73.5% in South China. This was the highest of the country and region figures.
The companies that responded "Yes, we do" and "Yes, we most likely will" notice an impact indicated various measures they are taking in response. These include a "shifting from full-time regular employees to temporary staff," "promoting the introduction of performance-based pay," and "transferring some production categories to other regions or countries." Japanese companies in China, in particular, are also studying concrete measures such as "outsourcing the production of products for domestic markets to affiliated companies" and "specializing in production of export-oriented products."
China and North Asia
The December DIs for China and North Asia as a whole were at 4.5, representing a drop of 1.9 points from the previous month. Looking at the last three months, we see that the declining trend has continued as the figures went from 10.0 in October to 6.4 in November to 4.5 in December.
Looking by region, we see that Taiwan went to -31.7, its lowest level in the past three years. The Republic of Korea was at -20.0, leaving it in the negative range for the fourth consecutive month. The figure for China as a whole was at 22.9, which was a drop of 3.0 points over the previous month but still sustains a relatively high level.
The outlook DIs for two to three months ahead turned down into the negative range for China and North Asia as a whole (from 4.5 in December to -1.3). One reason is that China has begun showing signs of a slowdown with a drop of 10.2 points relative to December (from 22.9 in December to 12.7). Another reason is the sluggishness of business sentiment in Taiwan (to - 28.7) and the Republic of Korea (likewise to -25.7).
· Electric and Electronic Machinery Favorable in Northeast, East, and South China, and Conditions in Taiwan and the Republic of Korea Remain Severe
Looking at business sentiment by industry for China in December, there has been an overall declining trend. Within that context, however, electric and electronic machinery set manufacturers have plans to increase production, and an upward turn in business sentiment is apparent in the northeastern, eastern, and southern regions. In Taiwan, the triple impact of a drop in selling prices, a sharp rise in raw material costs, and an increase in labor costs is causing the deteriorating mood in business sentiment to continue. In the Republic of Korea, the continuing rise in the value of the won is having a negative psychological influence on business sentiment, especially in the export industries.
2. An additional question was placed in the survey, as it was in September 2006, asking whether the rising labor costs affected 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 38.8%. This is not a significant change from September (37.9%), but the percentage responding similarly for the outlook came to 50.3%, which is a rise of 4 points since September (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 ASEAN were relatively high in Indonesia ("Yes, we do" at 51.5% and "Yes, we most likely will" at 64.4%). Meanwhile, in China and North Asia, the figure for "Yes, we do" notice an impact was 64.7% and for "Yes, we most likely will" was 73.5% in South China. This was the highest of the country and region figures.
The companies that responded "Yes, we do" and "Yes, we most likely will" notice an impact indicated various measures they are taking in response. These include a "shifting from full-time regular employees to temporary staff," "promoting the introduction of performance-based pay," and "transferring some production categories to other regions or countries." Japanese companies in China, in particular, are also studying concrete measures such as "outsourcing the production of products for domestic markets to affiliated companies" and "specializing in production of export-oriented products."
