China growth fragile, says survey

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.