[SHANGHAI] China's economy showed mild signs of stabilisation in the fourth quarter but corporates remained cautious on investment, a business survey found, highlighting stubborn resistance to efforts from Beijing to reinvigorate growth. "While the rebound is certainly not an impressive one, sales, profits, and employment have all improved a bit during the second half of the year," the China Beige Book said in a research note distributed to clients, citing findings from its quarterly survey of 2,000 Chinese companies.
It noted that wage and job growth remained stable, and export orders picked up, helping to offset weak internal demand. "Still, Q4's improvement defies Beijing's claims of rebalancing toward stronger consumption," it added in its report, pointing out that strong service performance was not accompanied by signs of rising end-user demand.
The report set for publication on Thursday follows a series of disappointing macroeconomic indicators in November, including a negative surprise from industrial activity, weak inflation readings and slack output, although loan growth and foreign direct investment have recovered slightly.
However, the survey showed respondents were increasingly wary of capital expenditure, posting a fourth straight quarter of decline.
Only 47 per cent of respondents said they intended to increase capex - a third straight record low for the poll - while 12 per cent cut capex. Declining investment intentions were particularly negative for services, with a 16 percentage point decline, and real estate, which saw a 26 percentage point plunge.
The report said the majority of the spending slowdown came from the state sector, but noted that both state-owned and private firms had slower year-on-year capex growth.
The report also highlighted the challenge the slowdown poses for monetary policy, arguing that further easing measures may do more harm than good given the reluctance of business leaders to increase spending.
Weak economic indicators have led to widespread calls for further stimulus, including a potential cut to bank reserve requirement ratios that could create an estimated 2.4 trillion yuan (US$387.8 billion) in fresh liquidity after applying the money multiplier.
The China Beige Book cast doubt on assumptions that this would necessarily trickle into fresh productive investment. "Deflation may foreshadow more attempts at monetary easing, but the half-hearted attempts thus far simply have not worked...if falling oil prices and a deflation threat lead monetary authorities to try strong easing measures, the result will likely be limited to out-of-control prices for equities." Chinese stock markets rallied strongly in November and early December, which analysts now attribute largely to a flood of new credit entering the system as a result of a surprise interest rate cut and a quiet relaxation of loan-to-deposit ratios at banks.
That phenomenon is similar to what occurred during China's stimulus package in 2009, when easy credit fuelled property and stock speculation, leaving Chinese firms heavily in debt.