By Gaurav Dogra and Brenda Goh
BENGALURU/SHANGHAI (Reuters) - Capital investment by Chinese firms has ground to its slowest pace in three years, as a weakening economy, tight credit and prolonged trade war with the United States dent sales growth and cash reserves, a Reuters analysis showed.
Companies are also spending more days to turn inventory into sales and eking out smaller profit gains, the analysis showed, in an economy growing at its weakest pace in nearly three decades, with many analysts expecting the slowdown to intensify.
The outlook became even more uncertain on Tuesday after U.S. President Donald Trump said a trade deal with China might have to wait until after the U.S. presidential election in November 2020.
"Things will get much worse before getting better," economists at Macquarie said in a client note on Monday. Even positive economic data from China recently is volatile and vulnerable to one-off factors such as warm weather, they said.
"After all, the so-called phase 1 deal is mainly about preventing things from getting worse, instead of making things significantly better," they said, referring to negotiations in a 16-month Sino-U.S. trade war punctuated by tit-for-tat import tariffs.
Chinese firms raised capital spending by 1.6% in the three months through September versus the same period a year prior, the weakest growth in three years, showed a Reuters analysis of about 2,900 firms with market capitalisation above $100 million.
"The weak appetite to invest is a problem in terms of generating a strong recovery in the Chinese economy," said senior China economist Julian Evans-Pritchard at Capital Economics.
"Overall credit conditions are still quite tight and credit growth is actually slowing ... because, in particular, the non-bank forms of credit access have become much more restrictive in the shadow banking sector."
Though the government has taken steps to encourage lending, bankers told Reuters they have little appetite to lend to small firms due to the trade war and uncertain economic outlook, as well as a years-long drive to cut risk in the financial system.
Cash reserves at surveyed firms grew 5.6% on year in the September quarter, the weakest since the first quarter of 2018. Moreover, the average number of days a company holds inventory before sale was 108 in the first nine months of the year, topping an annual average of 100 or less in the last four years.
Revenue grew 6.7%, the weakest in at least three years - the earliest period for which data from a comparable number of firms is available - while net profit rose 7.8% versus nearly 22% two years earlier.
The consumer discretionary and communications services sectors were among the poorest performers, with revenue shrinking 1.4% and growing just 1% respectively.
Companies' financial reports indicate consumers have been cutting back spending on vacations and big-ticket items such as cars and home appliances, while falling smartphone sales have capped growth among telecommunications network providers.
Car maker Zotye Automobile Co Ltd <000980.SZ> saw revenue in the September quarter drop 88% on year, and TV and smartphone maker TCL Corp <000100.SZ> cut capital expenditure by 72%.
Yet while earnings reports indicate a slowdown, growth in factory activity neared a three-year high in November, reinforcing upbeat government data released over the weekend.
(Reporting by Gaurav Dogra in Bengaluru and Brenda Goh in Shanghai; Writing by Miyoung Kim; Editing by Christopher Cushing)