The mainland economy is weakening across the board, with the previously robust retail and services sectors now starting to see slippage in revenue growth, according to the findings of a new nationwide survey.
The China Beige Book survey also revealed a fresh drop in private sector corporate borrowing in the second quarter of the year, sinking to its lowest level in 18 months, as lending costs rose, flying in the face of official data indicating a surge in credit growth across the economy.
"Pricing power deteriorated more than inflation in input costs and wages, resulting in a profit squeeze. Charged interest rates rose and company borrowing fell yet again," Leland Miller, the president of CCB International, which published the survey, said in a statement.
"Our data are clear that there has been no flood of credit."
Official data for last month put the annual growth in broad money supply at 15.8 per cent and total social financing - the government's measure of credit in the economy - was more than 1 trillion yuan (HK$1.26 trillion).
Overall financing in the economy was up 52 per cent in the first five months of the year on the same period last year, according to central bank data.
Only 30 per cent of the more than 2,000 firms questioned in the survey said they had taken on new lending in the second three months of the year, down 13 percentage points on a year ago. Meanwhile, 45 per cent of bankers surveyed said they had increased lending to business.
Miller said the disconnect was clear, with available credit seemingly being concentrated on a few borrowers and with most loans cascading into debt rollovers at the expense of funding for new business expansion.
Interest rates charged rose 34 basis points on the quarter to an average of 7.1 per cent, compared with the one-year benchmark borrowing rate of 6 per cent.
The survey's results make challenging reading for Beijing policymakers as a credit squeeze in the banking system stokes volatility across the country's financial markets, leading worried investors to further mark down their already deteriorating expectations for economic growth this year.
Investors had been pricing in a steady recovery from last year's growth of 7.8 per cent, the weakest reading for the mainland since 1999. The consensus has turned on its head during the second quarter, with many economists now forecasting growth will fail to hit the government's 7.5 per cent target.
Miller said the survey further underscored that the services and retail sectors had now become the new bellwethers of the mainland's economic performance, supplanting manufacturing after three decades.
The drop in the proportion of retailers reporting gains in spending growth - 15 percentage points from the first quarter and 12 percentage points from a year earlier at 58 per cent - was a key factor dragging on overall economic strength.
Retail spending growth declined in every region of the country, the survey found.
The services sector experienced a similar pullback in growth, with revenue gains seen by 54 per cent of survey respondents, down 12 percentage points on both the quarter and the year.
A bright spot in the data was that retailers had seen a rise in sales to consumers, rather than to businesses or government departments - the two areas targeted in Beijing's crackdown on corruption - and was a critical gauge of the country's economic rebalancing.
"Consumers must play a larger role if China is to become a rich country," Miller 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 firms.
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.