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What slowdown? Chinese firms most upbeat in a year

Tomohiro Ohsumi | Bloomberg | Getty Images

Chinese companies are increasingly optimistic on business activity, a new survey showed, even as recent data point to fresh signs of a slowdown in the world's second-largest economy.

Confidence among firms in February rose to a one-year high, according to Markit's latest business outlook survey released on Monday. China's service industry was the most upbeat, with sentiment there surging to a three-year peak.

Mainland businesses also anticipate higher revenues over the next 12 months as well as an increased pipeline of new work, Markit said.

The results paint a contrasting picture against recent data. Chinese industrial production for the first two months of the year fell back to levels seen during the 2008 financial crisis, while fixed asset investment for January and February was the weakest since 2001 and retail sales hit a decade low.

"Recent policy changes, including reforms to banks' lending/deposit rates and reserve ratio requirements [RRR], are cited as part of key factors that can support growth over the next year," Markit economist Annabel Fiddes said in the report, explaining the factors behind the sanguine outlook.

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Reports emerged last week that Beijing could fully liberalize deposit rates as early as this year, which would be two years ahead of schedule. IHS noted that the change would help smaller Chinese banks gain a foothold in the market and underpin hopes for the rollout of further financial reforms.

Meanwhile, the People's Bank of China has unveiled two interest-rate cuts as well as a reduction to the RRR for banks in the past four months, with more stimulus measures widely expected following last week's disappointing data deluge.

Is debt conversion the solution for China?
Is debt conversion the solution for China?

Unlike the firms surveyed by Markit, not everyone has faith in the central bank's recent easing moves.

"We maintain our view that there are rising risks of a mini hard-landing in 2015, as policy easing has not happened as quickly and aggressively as we expected," said Deutsche Bank economists in a note on Friday.

Global comparisons

China's bullish mood marks a stark contrast from its emerging market peers.

Separate Markit surveys conducted in February showed confidence in Brazil and India sinking to record lows, while optimism among Russian companies fell to near one-year lows.

Like China, the euro zone was another outperformer in Markit's surveys, with optimism in the United Kingdom, Germany, Italy, and Spain shooting up to one-year highs last month.

"The outlook for the euro area is boosted by the impact of European Central Bank stimulus and the competitive advantage arising from the euro's depreciation. Companies have lifted their hiring and investment intentions and are more positive about their business prospects," Chris Williamson, chief economist at Markit, said in the report.

Meanwhile, business optimism in Japan was the lowest of all countries surveyed by Markit as tepid domestic demand overshadowed the positive impact from a weaker yen.