The 5&5 Club, a Beijing-based organization offering peer networking and resource services for corporate presidents from growth enterprises, conducts its CEO Confidence Index Surveys among its member companies on a regular basis. The organization’s members are mostly small and mid-sized growth enterprises. Amid the deepening global economic crisis, they recently completed compiling the 2009 CEO Confidence Index Survey, based on which they drew a number of interesting conclusions.

The survey shows that the overall confidence index of the corporate leaders at growth enterprises rose back above 100 (the median) compared to the third quarter of 2008. However, the corporate executives’ confidence in the macroeconomic conditions fell sharply, while, in stark contrast, they showed a high degree of optimism in the outlook of their own businesses.

The survey shows that the macroeconomic confidence index dropped 13 points to the lowest level since the second quarter of 2008, though the rate of decline has slowed. Between the second and third quarter of 2008, the survey showed that executive sentiment towards the macroeconomic environment saw a big shift from comfortable to bad, and they gradually accepted the realities by the end of the year.

How long will the downturn last? 66% of respondents thought that it would last at least two years, while 27% predicted it would end within a year. 80% of the polled thought that the downturn would be somewhat bad, while 17% said it would be very bad. Only 2% believed it would not be that bad. The results show although the financial crisis is spreading, the general situation is not perceived as too serious for most growth enterprises.

The index measuring the CEOs’ confidence in their own companies rose 17 points to 130.7 from 113.6 in the previous quarter. Although there are concerns about the general economic outlook, only 6% of the respondents hinted at business changes or downsizing when asked about overall corporate strategies. Still 39% of the surveyed companies had plans to expand in 2009, and 54% said they would maintain their status quo.

In terms of fixed-asset investment, 46% of the surveyed companies said they would increase investment in 2009, unchanged from the previous two quarters. Only 15% of respondents said they would reduce capital expenditures.

In terms of sales revenue expectations, the CEOs showed increased optimism for 2009 compared with the third quarter of 2008. 66% of the respondents expected sales growth in 2009, much higher than the 58% recorded in the previous quarter. Only 12% projected lower sales revenue. As for profitability, more than half (56%) expected higher profitability for their businesses in 2009, an increase of 12% from the previous quarter.

At the same time, only 15% of the respondents expressed intentions to raise prices this year, lower than 30% in Q3 of 2008 and 18% in Q4. In the meantime, 27% of the surveyed companies say they would lower prices in 2009. To some extent, it indicates that the expected rise in sales revenue and profitability in 2009 would mainly come from the sales growth and cost reduction initiatives instead of price increases.

With regard to the common concern of layoffs, only 17% of surveyed businesses planned to downsize and 83% of companies said the number of employees will remain unchanged or even increase. 44% of the surveyed CEOs expected an increase in staff levels in 2009. This also demonstrates that attracting talents and keeping them is still one of the main priorities for growth enterprises.

It is interesting to note that although the surveyed executives are generally pessimistic about the economic outlook and believe the current economic crisis could continue for three years, they are very optimistic about the development of their own businesses. 93% of them said they would maintain the status quo or even expand, while more than 80% of the enterprises would maintain the current staff size or even hire new employees.

Where does the optimism come from? Are the surveyed enterprises deliberately cheering themselves up? Or are they just blindly optimistic? Perhaps for these particular small and medium-sized enterprises (SMEs), the optimism is due to their recent rapid growth. Amid the current economic crisis, slightly lowering growth expectations on the part of the executives might be considered conservative. Or it may be that the development of these SMEs has been relatively insulated from the dramatic changes in the overall economic environment, and that the large-scale macro-economic adjustments have yet to hit them.

Of course, there is another possibility. As the crisis deepens, these companies see new markets and opportunities. Compared with those who simply rely on low-cost advantages, some SMEs have focused on upgrading their own R&D capabilities and as a result, continuously edge higher up the value chains. The economic crisis stemming from the developed countries has, to some extent, brought about some opportunities.

The companies that have been largely serving local market enterprises may find their prices are still competitive in the current US and European markets. Amid an economic recession, the consumers and customers from Europe and the US have stronger demand for lower procurement costs. It may be a great time to expand to overseas markets. In addition, the bargaining power of Chinese growth SMEs can be increased correspondingly and their brand value can be more easily highlighted. The key is whether these enterprises can maintain their upside momentum in terms of R&D and customer service capacity. If the capacity in these areas is improved, the companies may be able to grab new market opportunities.

Compared with the enterprises without independent R&D capabilities and services that are heavily dependent on exports and low labor costs, these growth enterprises have stronger capacity in expanding their presence in overseas markets and are more nimble when it comes to taking the initiative. In a sense, these enterprises may elevate the overall position of Chinese companies in the global value chains.

Of course, all this is under the assumption that the global economic downturn for European and US markets will not be protracted. Otherwise, the opportunities will freeze up along with the market.