Key index shows entrepreneurs optimistic despite slowing growth

Confidence among business leaders rebounded for the first time in a year this quarter, despite the cooling economic climate, according to the results of a central bank survey released on Tuesday.

A key gauge, the entrepreneurs confidence index, rose to 70.2 percent in the first three months, 1.8 percentage points higher than the last quarter in 2011, a statement released on the People's Bank of China website said.

The growing confidence expressed by business leaders was in line with findings by UBS AG, Nomura Securities Co and HSBC Holdings.

Economists forecast that GDP growth may hit bottom in the January-March period and then recover thanks to a further easing in monetary policy and a rebound in fixed investment.

Another indicator - the Entrepreneurs Macro-Economy Heat Index - that gauges opinion about the current economic climate was not as optimistic as it registered 39.2 percent in the first quarter, compared with 41.7 percent three months earlier. Over the year, the index has dropped by 12.3 percentage points, according to a central bank survey of 5,000 companies.

The index has been below 50 for nine months. A reading below that mark means contraction, above indicates expansion.

"GDP growth in the first quarter may slow to 8.2 percent from a year earlier and be pushed up later by social housing and infrastructure investment," said Wang Tao, China chief economist and head of China economic research at UBS.

A growth target of 7.5 percent has been set for 2012 from last year's 8 percent, the slowest in eight years. This is a consequence of a complicated global economic situation that provides space to further structurally transform the domestic economy, Premier Wen Jiabao said recently in the annual government work report.

Wang expected growth in the world's second-largest economy may actually be 8.5 percent this year, compared with 9.2 percent last year and 10.4 percent in 2010.

The respondents were particularly optimistic on market demand, exports and domestic consumption, although exports to the eurozone further declined and retail sales fell in January and February, according to the central bank.

Qu Hongbin, chief China economist at HSBC Holdings, said that the central bank may further reduce reserve requirements for banks, the amount of cash they must set aside and not lend, to boost manufacturing amid easing inflation.

According to the central bank, 62.9 percent of 20,000 households from 50 cities expressed dissatisfaction about "too high" consumer prices, 4 percentage points less than a year earlier. There was a drop in those expecting inflation to rise, with 31.4 expecting it to increase against 36.8 percent in the last quarter of 2011.

"Our forecast of 3.5 percent inflation for 2012 takes into account modest increases in energy and utility prices," Wang said.

The central bank survey also showed that expectations were at a three-year low among households regarding rising property prices.

It also indicated higher public acceptance of housing inflation.

"We forecast a housing price drop between 5 to 10 percent this year," said Zhu Haibin, chief economist of JP Morgan in China.

"The Chinese real estate market will not suffer a crash although the government has showed its determination to further control the housing bubble," he said.

Xia Bin, a researcher with the State Council's Development Research Center, said in an interview with Bloomberg Television in Hong Kong that "a hard landing is impossible for the country" and a moderate slowdown is the logical path for the economy.