CHINESE firms grew increasingly cautious about spending in the first quarter as the economy cooled, with growth in capital expenditure dropping to its weakest on record even as profit margins held up better than expected, a private survey showed.

    The China Beige Book’s quarterly survey of over 2,000 Chinese firms found signs of declining investment in every sector it surveyed apart from real estate.

    Even companies in China’s services sector, which has been one of the few bright spots in the economy, reported declining capex investment on an annual basis.

    “China may be breaking its addiction to investment — intentionally or not,” the report said.

    However, the survey found that despite slowing investment and disappointing holiday retail sales, respondents had managed to find a silver lining, taking advantage of sliding input costs and slowing wage growth to boost profit margins and reduce debt.

    That data highlight the gap in business performance between private Chinese companies and massive State-owned firms in industries such as mining, steel and energy, which have seen profits punished by sliding commodity prices.

    China has set an economic growth target of around 7 percent this year, down from 7.4 percent in 2014 and the slowest pace in a quarter of a century.

    Many economists say even 7 percent may be tough to reach without a raft of additional policy easing measures, but the China Beige Book said its findings show companies are weathering the slowdown better than most headlines suggest, and throwing more credit at the problem may not help.

    “With firm performance and the labor market both in decent shape, the absence of heavy stimulus should be surprising only to those analysts who still make policy predictions based on gross domestic product,” Leland Miller, president of the China Beige Book, wrote in the report.

    Given that the company executives surveyed did not appear to expect or need fresh credit going forward, Miller questioned the usefulness of more aggressive easing.

    The share of companies expecting to borrow in the next six months fell 2 percentage points to 30 percent, and the proportion of companies expecting credit availability to rise also fell, the survey found.

    This would imply that further liquidity injections would be unlikely to translate into increased productive investment.

    “Orders [for banks to lend more] may or may not come from on high, but an assessment of financial intermediation indicates stimulus simply won’t work as some in Beijing desire,” the China Beige Book said. (SD-Agencies)