BEIJING/SHANGHAI (Reuters) – Chinese companies are on a pace to cut capital spending by around 7 per cent this year, the biggest annual reduction since the global financial crisis, deepening an economic chill.
Slower spending by companies underscores the challenges that China faces this year in containing an economic slowdown that is set to be its worst in 24 years, and which has been aggravated by a sagging property market.
The cutbacks could persist, indicating that China’s economy, which has relied heavily on investment, will need to speed up rebalancing to feed growth.
Economic uncertainty and a government campaign to curtail industries that are either heavy polluters or are stuck with a glut of unsold goods mean that investment could fall next year as well, interviews with companies and analysts showed.
A Reuters analysis of 335 Chinese companies, ranging from drug to machinery makers, shows investment is expected to fall 7.3 per cent this year – or 74 billion yuan ($12.1 billion) – from 2013 levels, according to Thomson Reuters Starmine data.
For many companies such as Yunnan Tin Co Ltd, whose sales and profits have been hit by China’s softening economy, being frugal is a matter of survival. Analysts on average expect the firm, which is the world’s largest tin producer, to slash capital expenditure by 81 per cent this year.
“We feel that the economic downturn will continue, so it’s better to keep our eye on our wallet,” said Pan Wenhao, board secretary at Yunnan Tin, which posted a net loss of 1.27 billion yuan last year.