Listen to China's CFOs Opinions and Challenges China CFO ... · market growth and structures,...

Listen to China's CFOs – Opinions and Challenges China CFO Survey 2016 Q3November 2016 中国首席财务官菁英计划

Listen to China's CFOs – Opinions and Challenges | China CFO Survey 2016 Q3Listen to China's CFOs – Opinions and Challenges | China CFO Survey 2016 Q3

02

Foreword

Our survey

Domestic and global factors

Enterprises of different ownership structure

Challenge for finance department

Conclusion

Meet the team

Contact details for Deloitte's China Practice

01

02

03

07

10

11

12

13


01

ForewordThroughout 2016, growth prospects for the global economy have continued to weaken, and recent events such as Brexit, global terrorist attacks, and the US presidential election are creating elevated levels of uncertainty for businesses worldwide. The Conference Board outlook for global economic growth remains modest at 2.2% in 2016 and at 2.6% in 2017. It shows that growth in most advanced economies will remain low, with slow potential growth and a gradual closing of output gaps. Prospects remained diverse across emerging market and developing economies, with only some improvements for a few large emerging markets—in particular Brazil and Russia.

Along with economic uncertainty, companies are also faced with other looming challenges, such as government policy and regulation, increasing competition, inflation, market growth and structures, talent development and pricing trends. Also worrying business executives in China is the clear trend of Renminbi depreciation since

August 2015 and the expectation of further depreciation, a concern for businesses relying on imports and indebted in US dollars – it means the rise in operating costs. Surprisingly, most financial managers did not pose Brexit as a risk to Chinese business on the whole. Businesses are actively taking advantage of the 'belt and road' initiative to promote industrial development and stimulate international trade by enhancing both cooperation and proving more investment opportunities.

Deloitte's CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead of these challenges and demands. The Program encompasses a wide range of initiatives with the purpose of helping CFOs manage the complexities of their roles, tackle their company's most compelling challenges, and adapt to strategic shifts in the market. One of the key initiatives is the CFO Survey, which seeks to collect CFOs' opinions on business environment, company priorities and expectations, financial

priorities, and personal priorities. Due to CFO's differing responses and views to prevailing economic conditions, we again have conducted a separate CFO survey in the China market place to gain an understanding of the real challenges faced by CFOs in China and to provide our recommendations and offer a broader perspective on how the Chinese economy and its challenges fits into the global economic view.

This survey, which we hope you find insightful, is only one of the China CFO Program's key initiatives. We will keep you posted about our other initiatives that are coming up in the near future. If you have any feedback about the survey or our Program, please do not hesitate to contact us.

William ChouNational Managing Partner China CFO ProgramDeloitte China


02

Our survey

This CFO survey is conducted by Deloitte China to collect CFOs' point of views about economic environment, business challenges and how Chinese enterprises could respond to the

Figure 2: Total revenue of participating enterprises in the past financial year (Unit: RMB)

Source: China CFO Survey 2016 Q3, Deloitte Research

29%

6%

33%

13%

19%Below 500m

500m ~1bn

1bn ~ 5bn

5bn ~ 10bn

Over 10bn

changes. There are 116 respondents participated in this survey, among which 14 respondents come from SOEs, 35 respondents come from POEs, and 67 respondents are from

MNCs. The industries targeted by this survey are widely dispersed as shown in Figure 1, and so are their firm sizes as in Figure 2.

Figure 1: Distribution of participating enterprises by industry


Manufacturing

Financial servicesConsumer business

Technology, media & telecommunicationsEnergy & resources

Life sciences & healthcarePublic sector

Others

9%5%5%2%

10%

24%21%

24%


03

Domestic and global factors

CFOs are not optimistic about the economy and worrying about a potential turmoil, but sentiment is turning positive during the yearFacing a slowing-down economic growth and a rising financial leverage, only 8% CFOs expressed their optimism towards the economy, while 54% believed there was no change in economic sentiment during last 3 months and 38% reported "less optimistic". However, compared to first quarter in 2016, CFO sentiment is turning positive. In first quarter, only 39% reported "no change" but

50% reported "less optimistic", so about 10% of CFOs are shifting their opinions towards a positive direction.

To be specific, Figure 4 depicts CFOs' greatest concern among risky factors. It can be seen that a lot of CFOs are worrying about a future economic turmoil or recession as well as a detrimental political uncertainty. The results are similar in first quarter, except that the percentage of CFOs concerning about recession decreases from 58% to 41%, which also implies a positive shifting in opinions.

Figure 3: Changes in CFOs' views on economic prospects over the past three months


8%

54%

38%

0% 10% 20% 30% 40% 50% 60%

More Optimistic

No Change

Less Optimistic


04

On industrial challenges, enterprises are facing multiple challenges as shown in Figure 5. Challenges impacting the industry mainly come from fierce competition, slower

market growth and changing eco-system, and more unfavorable pricing trends. Challenges outside the industry mainly focus on regulation and lack of talent.

Figure 4: Potentially high-impact risk CFOs worry the most


1%

4%

5%

7%

7%

10%

25%

41%

0% 10% 20% 30% 40% 50%

Rising commodity prices

Investment / execution missteps

Geopolitical issues

Worsening capital availability / cost

Inflation

Increasing competition / pricing pressures

Detrimental government policy / regulation

Further economic turmoil / recession

0% 10% 20% 30% 40% 50% 60% 70%

Others

Input prices

Changing cost structures

Mergers and acquistions

Overcapacity

Pricing trends

Talent

Industry regulation / legislation

Competition

Market growth and structures

First choice Second choice Third choice

Figure 5: Top three industrial challenges



05

In global business environment, enterprises benefit from the "Belt and Road" initiative and are affected by Renminbi depreciation in various ways, but are not strongly affected by Brexit at this moment

11%

2%

13%

14%

19%

20%

21%

0% 5% 10% 15% 20% 25%

Others

Boost Renminbi usage and strengthenRenminbi's niche as Asian major currency

Not applicable on my business

facilitate infrastructure construction

Facilitate trade as more outward investment

Facilitate economic cooperation

Facilitate industrial development

Figure 6: Benefit for enterprises from "Belt and Road" initiative


"Belt and Road" initiativeThe "Belt and Road" initiative is a development strategy and framework to strengthen connectivity and to promote cooperation between China and the rest of the world. As shown in Figure 6, enterprises benefit from "Belt and Road" in the senses that the policy promote industrial development and stimulate international trade by both enhancing cooperation and providing more investment opportunities.


06

Renminbi DepreciationSince August 2015, Renminbi has shown a clear trend of depreciation and the expectation of a future depreciation still exist in the market. According to Figure 7, Renminbi depreciation most affects

Figure 7: How Renminbi depreciation affects business


4%

10%

18%

18%

21%

29%

0% 5% 10% 15% 20% 25% 30% 35%

others

Suffered loss for companies entered into contracts for hedging purpose (e.g. forward)

More costly to service their obligations (for companies with US dollars debts)

Importers facing higher costs

Boost the competitiveness of China's exports

Assets values in China

multinational companies with assets denominated in RMB. Business relying on imports and indebted in US dollars will face rising operational cost. But for exporters, their competitiveness are boost in overseas markets.

BrexitIn Figure 8, 82% of the participating CFOs reported their enterprises are not exposed to risk from Brexit. 24% of our respondents cited that Brexit would increase market complexity and

Figure 8: China business exposed to UK and / or GBP related matters


18%

82%

Yes

No

cost, and eventually weakening their competitiveness (18%) due to market access limits. However, 12% of those who chose "Yes" regarded they might benefit from Brexit by purchasing assets in the UK.


07

Enterprises of different ownership structure

State owned enterprises (SOE), private owned enterprises (POE) and Multinational companies (MNC) are facing different problemsAmong the participating CFOs, 12% of the respondents are SOEs, 30% are POEs and 58% are MNCs. Due to different ownership structure,

0%

8%

8%

15%

15%

23%

31%

0% 5% 10% 15% 20% 25% 30% 35%

Others

Liquidity risks

Capital turnover

Overseas cash pool

Market value management

Fund management and financing

Credit risks

Figure 9: The biggest challenge in fund management for SOEs


these firms are exposed to different challenges.

State owned enterprises (SOEs)Among all the challenges SOEs are facing, CFOs worry about credit risks the most, followed by fund management and financing, as shown in Figure 9.


08

As more and more SOEs are developing overseas business, CFOs are propelled to optimize financial systems addressing the requirement of capital concentration and sharing. Most CFOs agreed on developing an integrated treasury system combining


Figure 10: The best way to establish the platform for capital concentration and sharing

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

0%

8%

8%

15%

31%

38%

Others

Reshape the governance and shareholding structure

Establish international financial teams

Optimize the overseas fund management system

Design treasury and financial services in accordance with enterprise businesses

Integrate working capital, accounting, finance, and online banking systems into one

treasury system

working capital, accounting, finance and online banking systems, as well as redesigning treasury and financial services of the capital sharing center in accordance with business requirements and situations, as shown in Figure 10.

Private owned enterprises (POEs)Almost all the CFOs (94%) in POEs reported that they were actively involved in business transformation and participated as a core management member in developing

transformation strategy. Most of CFOs (78%) regarded it as an urgent issue to go beyond traditional financial perspectives in response to the prevalence of information technology in other industries, as shown in Figure 11.

Figure 11: The most urgent response to prevalence of IT in each industries

0% 10% 20% 30% 40% 50% 60% 70% 80%

78%

12%

5%

5%

0%Others

Be able to control network risks concerning financial information

Be able to communicate effectively with CEOs and other executives

Be able to make market forecasts by leveraging big data technologies

to enhance financial analysis

Be able to make strategic decisions, going beyond the traditional financial perspectives



09

Figure 12: Most potential competitor for MNCs


61%

18%

21%

Private owned enterprises

State owned enterprises

Conglomerates

Figure 13: Ranking of risks MNCs are facing


0102030405060708090

100

Domesticconsumption

slow down

Localcompetitors

Exchangerate

Domesticmarket

access issues

Foreigninvestmentrules and

supervision

1 2 3 4 5

Multinational companies (MNCs)Interestingly, most of the multinational companies (61%) take private owned enterprises as their potential competitors, as shown in Figure 12.

CFOs from MNCs are required to rank the risks they are exposed to, ranking 1 as the highest and 5 as the lowest. As the result shown in Figure 13, "domestic consumption slowing down" is

their greatest concern, followed by "local competitors", "exchange rate", "domestic market accessibility" and "foreign investment rules and supervision".

10

The primary challenge for most finance departments is how to influence business strategyFinance departments are facing many kinds of challenges in their operations, among which influencing business strategy comes as the greatest

Challenge for finance department

Figure 14: Top three challenges for finance departments


0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Others

Managing cost of finance department

Supporting a major infrastructure or business initiative

Addressing changes in accounting standards and / or tax laws

Forecasting and reporting business results

Ensuring compliance with financial reporting and control requirements

Supporting a major transaction (e.g. M&A, divestiture)

Ensuring funding, liquidity and acceptable costs of capital

Aligning budgets and capital expenditure decisions with priorities / strategies

Currency movement

Ensuring initiatives achieve desired business outcomes

Proceses efficiency

Securing and retaining finance talent

Influencing business strategy

Providing metrics, information and tools needed for sound business decisions

First choice Second choice Third choice

according to our survey results, shown in Figure 14. CFOs are required to rank the top three challenges among 14 ones. "Influencing business strategy" ranks the highest as the first choice and in aggregation.


Listen to China's CFOs – Opinions and Challenges | China CFO Survey 2016 Q3

In conclusion, CFOs are generally not optimistic about the economy in China and worrying about a potential turmoil. Enterprises are actively taking advantage of the "belt and road" initiative and trying to avoid the influence of Renminbi depreciation. The greatest concern of state owned enterprises (SOEs) is credit risk, while it's urgent for private

Conclusionowned enterprises (POEs) to make strategic decision in response to the prevalence of information technology in other industries. Meanwhile, multinational companies (MNCs) are mostly concerning about domestic consumption slowing down. All in all, finance departments need to increase their ability of influencing business strategy.

Listen to China's CFOs – Opinions and Challenges | China CFO Survey 2016 Q3

11


12

William Chou Emily LeungNational Managing PartnerChina CFO ProgramDeloitte China

National Program Senior ManagerChina CFO ProgramDeloitte China

Tel: +86 10 8520 7102Email: [email protected]

Tel: +852 2852 1686Email: [email protected]

Peng Li Jennifer Xu Jens EwertSOE Sector LeaderChina CFO ProgramDeloitte China

POE Sector LeaderChina CFO ProgramDeloitte China

MNC Sector LeaderChina CFO ProgramDeloitte China




Author

Deloitte Research TeamEmail: [email protected] would like to thank all participatng CFOs for their support in completing the Survey.

Contact

Meet the team

About Deloitte China's CFO Program

China CFO Program brings together a multidisciplinary team of Deloitte leaders and experience professionals to help CFOs stay ahead in the face of growing challenges and demands. The Program harnesses our organization's board capabilities to deliver forward thinking and fresh insights for every stage of a CFO's career – helping CFOs manage the complexities of their roles, tackle their company's most compelling challenges, and adapt to strategic shifts in the market.

For more information about Deloitte China's CFO Program, visit our website at: www.deloitte.com/cn/en/chinacfoprogram.html


13

Beijing Harbin ShenzhenDeloitte Touche Tohmatsu Certified Public Accountants LLPBeijing Branch8/F Tower W2The Towers, Oriental Plaza1 East Chang An AvenueBeijing 100738, PRCTel: +86 10 8520 7788Fax: +86 10 8518 1218

Deloitte Consulting (Shanghai) Company LimitedHarbin BranchRoom 1618, Development Zone Mansion368 Changjiang RoadNangang DistrictHarbin 150090, PRCTel: +86 451 8586 0060Fax: +86 451 8586 0056

Deloitte Touche Tohmatsu Certified Public Accountants LLPShenzhen Branch13/F China Resources Building5001 Shennan Road EastShenzhen 518010, PRCTel: +86 755 8246 3255Fax: +86 755 8246 3186

Changsha Hefei SuzhouDeloitte & Touche Financial Advisory Services Limited Changsha Branch20/F Tower 3HC International PlazaNo. 109 Furong Road NorthKaifu DistrictChangsha 410008, PRCTel: +86 731 8522 8790Fax: +86 731 8522 8230

Deloitte Consulting (Shanghai) Co., Ltd. Hefei Office1201# Room Tower A, Hua Bang ICC BuildingNo.190 Qian Shan Road, Government and Cultural New Development District, He Fei 230601, An Hui Province, PRCTel: +86 551 6585 5927Fax: +86 551 6585 5687

Deloitte Touche Tohmatsu Certified Public Accountants LLPSuzhou Branch 23/F, Building 1, Global Wealth Square88 Su Hui Road, Industrial ParkSuzhou 215021, PRC Tel : +86 512 6289 1238Fax: +86 512 6762 3338 / 6762 3318

Chengdu Hong Kong TianjinDeloitte Touche Tohmatsu Certified Public Accountants LLPChengdu BranchUnit 3406, 34/F Yanlord Landmark Office TowerNo. 1 Section 2, Renmin South RoadChengdu 610016, PRCTel: +86 28 6789 8188Fax: +86 28 6500 5161

Deloitte Touche Tohmatsu35/F One Pacific Place88 QueenswayHong KongTel: +852 2852 1600Fax: +852 2541 1911

Deloitte Touche Tohmatsu Certified Public Accountants LLPTianjin Branch30/F The Exchange North Tower No.1189 Nanjing RoadHeping DistrictTianjin 300051, PRCTel: +86 22 2320 6688Fax: +86 22 2320 6699

Chongqing Jinan WuhanDeloitte Touche Tohmatsu Certified Public Accountants LLPChongqing Branch36F, Deloitte Tower8 Corporate Avenue, 10 Ruitian RoadYuzhong DistrictChongqing 400043, PRCTel: +86 23 8823 1888 Fax: +86 23 8859 9188

Deloitte Touche Tohmatsu Certified Public Accountants LLP Jinan Branch Units 2802, 2803 & 2804, 28/F, China Overseas Plaza OfficeNo. 6636, 2nd Ring South Road2nd Ring South Road, Shizhong District, Jinan, 250000, PRCTel: +86 531 8973 5800 Fax: +86 531 8973 5811

Deloitte Touche Tohmatsu Certified Public Accountants LLPWuhan BranchUnit 2, 38/F New World International Trade Tower568 Jianshe AvenueWuhan 430022, PRCTel: +86 27 8526 6618Fax: +86 27 8526 7032

Dalian Macau XiamenDeloitte Touche Tohmatsu Certified Public Accountants LLPDalian BranchRoom 1503 Senmao Building147 Zhongshan RoadDalian, PRCPostal Code: 116011Tel: +86 411 8371 2888Fax: +86 411 8360 3297

Deloitte Touche Tohmatsu19/F The Macau Square Apartment H-N43-53A Av. do Infante D. HenriqueMacauTel: +853 2871 2998Fax: +853 2871 3033

Deloitte Touche Tohmatsu Certified Public Accountants LLPXiamen BranchUnit E, 26/F International Plaza8 Lujiang Road, Siming DistrictXiamen 361001, PRCTel: +86 592 2107 298Fax: +86 592 2107 259

Guangzhou NanjingDeloitte Touche Tohmatsu Certified Public Accountants LLPGuangzhou Branch26/F Yuexiu Financial Tower28 Pearl River East Road Guangzhou 510623, PRC Tel: +86 (20) 8396 9228Fax: +86 (20) 3888 0575

Deloitte Touche Tohmatsu Certified Public Accountants LLPNanjing Branch6/F Asia Pacific Tower,2 Hanzhong Road,Xinjiekou Square,Nanjing 210005, PRCTel: +86 25 5790 8880Fax: +86 25 8691 8776

Hangzhou ShanghaiDeloitte Touche Tohmatsu Certified Public Accountants LLPHangzhou BranchRoom 1206-1210, East BuildingCentral Plaza, No.9 Feiyunjiang Road, Shangcheng DistrictHangzhou 310008, PRCTel: +86 571 8972 7688Fax: +86 571 8779 7915 / 8779 7916

Deloitte Touche Tohmatsu Certified Public Accountants LLP30/F Bund Center222 Yan An Road EastShanghai 200002, PRCTel: +86 21 6141 8888Fax: +86 21 6335 0003

Contact details for Deloitte's China Practice

About Deloitte Global Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. Deloitte provides audit, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 244,400 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

About Deloitte ChinaThe Deloitte brand first came to China in 1917 when a Deloitte office was opened in Shanghai. Now the Deloitte China network of firms, backed by the global Deloitte network, deliver a full range of audit, consulting, financial advisory, risk advisory and tax services to local, multinational and growth enterprise clients in China. We have considerable experience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. To learn more about how Deloitte makes an impact that matters in the China marketplace, please connect with our Deloitte China social media platforms via www2.deloitte.com/cn/en/social-media.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the "Deloitte Network") is by means of this communication, rendering professional advice or services. None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. CQ-068EN-16©2016. For information, contact Deloitte China.

Listen to China's CFOs Opinions and Challenges China CFO ... · market growth and structures,...

Documents

Transcript of Listen to China's CFOs Opinions and Challenges China CFO ... · market growth and structures,...