SHANGHAI (Reuters) - Profit margins at Chinese firms improved in the third quarter while loan demand remained weak, a private survey showed , with the overall results suggesting the stock market crash would have minimal impact on the broader economy.
The quarterly survey of over 2,100 businesses by China Beige Book International (CBB) showed continued robust growth in the service sector but persistent weakness in manufacturing.
Still, while revenue growth slowed quarter-on-quarter, and only 38 percent of firms surveyed planned to hire more staff in the fourth quarter - down 4 percent on the year - the authors emphasized the relative resilience of the corporate sector heading into year-end.
“Q3-15 was hardly a game changer...the broader collapse assumed by disciples of the PMI has strikingly little basis,” report authors Leland Miller and Craig Charney wrote, noting that firms also reported falling real interest rates.
“In fact, there is very little to distinguish Q3’s revenue performance from many previous quarters, calling into question August’s global market sell-off that most attributed to China’s sudden ‘fragility’,” they said.
The relatively sanguine views of the Beige Book report contrasts with the recent string of weak economic indicators, which have raised fears of a deepening economic slowdown in China and in part prompted the U.S. Federal Reserve last week to hold off from delivering its first rate hike in almost a decade.
A stock market crash has further dimmed investor sentiment, which remains fragile despite a flurry of stimulus measures including several interest rate cuts as Beijing stepped up efforts to support an economy growing at its slowest pace in decades.
But the report pointed to some hopeful signs, with hiring steady in the third quarter and the economy continuing to draw support from a healthy services sector where many of China’s more productive private enterprises lie.
Revenue rose at 59 percent of service sector firms surveyed in the third quarter, up six percent on the quarter.
Across all firms, profit margins were up at 47 percent of the companies surveyed, 2 percent higher than the second quarter.
Capital expenditure was another bright spot, rising for the second quarter in a row, with 48 percent of firms surveyed reporting increases in capex, up 3 percent on the second quarter.
Loan demand, however, was extremely weak, continuing a pattern evident for much of the year. Of bankers surveyed, only 36 percent reported a rise in applications, down 11 percent from the second quarter.
Moreover, the modest rebound in the real estate and construction sector evident earlier in 2015 also appeared to be losing steam.
Reporting by Nathaniel Taplin; Editing by Pete Sweeney and Shri Navaratnam