• Fri
  • Aug 22, 2014
  • Updated: 11:13pm
BusinessEconomy

China growth fragile, says survey

Despite data pointing to gradual economic recovery, China Beige Book says poll of 2,000 firms shows business conditions are not well

PUBLISHED : Wednesday, 25 September, 2013, 3:35pm
UPDATED : Thursday, 26 September, 2013, 3:06am

Business conditions on the mainland are worse than the latest economic data suggests, with bank credit a particular worry for companies across a swathe of heavy industry and construction where growth momentum has slowed in the past three months, according to a new nationwide survey.

The China Beige Book survey of more than 2,000 mainland companies signals that the return of stability to the world's second-biggest economy is built on fragile foundations, despite official data depicting a gradual recovery from the slowest period of growth in three years that has triggered a raft of upward revisions to economists' forecasts.

"This release represents perhaps the most surprising - and important - data that we have released in seven quarters of polling, with results that undercut the conventional wisdom that [the third quarter] saw both significant stimulus and a significant recovery. Both appear to be a fiction," Leeland Miller, the president of CCB International, which published the survey, told the South China Morning Post.

Manufacturing and real estate activity slowed, mining and transport growth sank and services and retail activity managed only slight gains after a poor second quarter, the survey found.

All of that flies in the face of a run of recent official data pointing to a stronger-than-expected recovery in industrial production and a rise in infrastructure and manufacturing investment.

Economists at Bank of America Merrill Lynch and UBS were among those to raise their full-year economic growth forecasts after official data published earlier this month showed a stronger-than-expected rise in industrial production and a rise in infrastructure and manufacturing investment, although both banks cautioned that the momentum might wane in the fourth quarter.

A bounce to a six-month high in the HSBC flash manufacturing purchasing managers' index for China this month, published earlier this week, further reinforced the sense of a return to stable growth.

The China Beige Book survey suggests that economic momentum has already gone into reverse, with credit conditions the clearest indication of that.

"The share of companies reporting loan applications jumped, but rejections jumped at double that rate," the survey said. "The yellow lights our credit data have been flashing since [the fourth quarter of last year] may now be flashing red."

Only 18 per cent of bankers polled by the survey said that more than 30 per cent of business loans went to new customers - down 22 points on the previous survey - which means a greater proportion of lending in the past three months was directed to debt rollovers, or lengthening credit lines to existing borrowers.

Of the eight regions the survey tracks, Guangdong experienced the sharpest decline in revenue growth, particularly in the retail sector. Beijing and Shanghai regions had stable gains, while the southwest, north, central and northeast regions all saw slowdowns. Only the west saw a slight pickup in growth.

"Weakening gains in profits, revenues, wages, employment and prices all show slipping growth on quarter - no disaster, but certainly not the powerful expansion suggested by the consensus narrative," the survey said.

The China Beige Book survey, modelled on the US Federal Reserve survey of the same name, polled executives from manufacturing, retail, service, transport, property and construction, farming and mining companies.

Respondents run businesses of every size, from micro-level firms with a handful of staff to large companies employing more than 500 workers.

The survey also canvassed opinions from bank loan officers and bank branch managers across the country.

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