Global companies fear government intervention

Government intervention and intrusive regulation is a greater cause of concern for the heads of global companies than wage costs, pricing issues or their own balance sheets, according to a survey of Fidelity Worldwide Investment's research analysts.

This anxiety is making companies reluctant to spend money despite balance sheets improving, and is slowing the economic recovery, according to Fidelity. Part of the reluctance to spend out of cash-flows may be due to a reliance on short-term funding, Fidelity stated.

Cash-rich companies in Asia excluding Japan are sitting on around US$1 trillion in cash, which is mostly going in the way of extra dividends, according to Matthew Sutherland, Fidelity Worldwide Investment's head of research - Asia Pacific.

The number one concern ahead of government intervention was sales volumes, according to the survey of 110 of Fidelity's research analysts, reflecting the thoughts of thousands of chief executives and other top management at listed companies in Europe and Asia, conducted last month.

"Government interference in the free market for goods and services is a perennial concern for companies," Sutherland said.

"However, it is running higher than usual now due to governments' new religion of balancing budgets, which could cause them to seek revenue opportunities through new tax schemes. Also, a world of competitive currency devaluations potentially leads to trade wars, quotas, tariffs and other destabilising influences."

Governments including China's are increasingly micro-managing business to achieve macro goals, he added.

The survey found 71 per cent of global corporates are planning on reducing or keeping constant their capital expenditure, 68 per cent on freezing spending growth in IT and 62 per cent on freezing spending growth in marketing, while only 29 per cent planned to actively recruit new employees.

"Clearly there is a lack of conviction amongst CEOs that governments will leave them alone or that a global recovery is underway," said Henk-Jan Rikkerink, Fidelity's head of research - Europe.

"A dose of corporate Prozac, as well as clearer outcomes from our governments, are required to kick-start the corporate spending which could help spark a global economic recovery."