By Carly Brockinton
As China settles into it’s “new normal” of slower, but steady growth, Deloitte China surveyed Chinese CFOs about their expectations of the climate in China in the medium and long term. The survey showed that CFOs are less optimistic, wary of further economic turmoil and detrimental governmental policies and regulations. More than 70 percent of CFOs have proactively made adjustments in response to China’s New Normal.
Highlights of the report:
- 50% of CFOs felt worse about the economic outlook over the past three months; only 11% were more optimistic
- 58% of CFOs ranked further economic turmoil/recession as the top risk factor, followed by detrimental governmental policies and regulations
- More than 67% of CFOs ranked competition as one of the top three industry challenges in the New Normal (the top response at 21%), followed by market growth and structures and talent
- More than 50% of surveyed CFOs consider revenue growth as the primary business focus; 77% regard it as one of the top three business focuses.
William Chou, national managing partner, China CFO Program, Deloitte China; and SiTao Xu, Deloitte China’s chief economist, explained some of those results to CBR.
Q: Why did you target CFOs in your survey of market challenges in China? Is there something about their role specifically that is telling?
William: There is a paradigm shift in the role of CFOs, who are now more involved in corporate strategies and important corporate decisions. As such, opinions of CFOs will be indicative of how companies view market challenges and economic outlook, and this will be useful information for other business executives. We also hope to see how CFOs deal with the hurdles from more stringent financial reporting and corporate governance requirements. These are the reasons for us to target CFOs in our survey.
Q: CFOs in your survey cite economic turmoil as a reason to be less optimistic about the China market; however, the slowdown in GDP growth is seen as more of a stabilization to a “new normal.” With that new normal, growth as a percentage has declined, but it’s still significant growth. So, why the pessimism?
Xu: The main concern of foreign investors about the Chinese economy is not the slowdown of GDP growth, but potential instability resulting from its financial system and capital market. Major challenges include:
- Volatile stock market;
- Continuously rising Local government debt;
- Policy stability;
- Tangible progress of SOE reform;
- Property bubble;
- Sustainability of economic growth; and
- How to restructure China’s economy
Q: When CFOs rank competition as a top industry challenge, is it because of growth within their industry and therefore more competition, or because the government regulations favor domestic companies and causes unfair competitive advantages for Chinese companies? Fair and equal competition is a top priority issue for the US-China Business Council. How would you suggest fixing this issue?
Xu: Apart from their concern about a level playing field, the strengthening of local companies in terms of corporate governance, and the financing capability and investment in R&D, also make competition more fierce.
Q: How does the Deloitte CFO Program help executives navigate challenges in the China market?
William: The Deloitte China CFO Program brings together a multidisciplinary team of senior partners and experienced professionals to help clients address some of the unique challenges in the marketplace. Our program harnesses the breadth of Deloitte’s capabilities to deliver forward thinking perspectives and fresh insights to help CFOs manage the complexities of their role, drive more value in their organization and adapt to the changing strategic shifts in the market.
Q: Do CFOs struggle finding talent in China? Why?
William: In general, there is a talent shortage in China, and it is not only confined within the accounting and financial profession. In our survey, the talent issue was also cited by CFOs as one of their top three challenges related to internal management of their companies. One of the reasons is that China’s economy has been growing rapidly for the past two decades until it has recently entered what many describe as the “New Normal.” Talent growth cannot catch up with the rapid expansion of China’s economy.
Q: What is the No. 1 thing every CFO about to enter the China market needs to know?
Xu: The No. 1 thing the newcomers should know is the Chinese economy is in a transition period, changing from a manufacturing-based, export-driven economy to a service-based, domestic consumption-driven economy.