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Chinese companies are on a pace to cut capital spending by around 7% 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% 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% 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.
Others are also staying lean in tough times.
A Reuters study showed that cash balances at 726 companies rose 13% in the first six months of this year compared with the year-ago period, as firms curbed investment in the face of uncertainty.
The flight to safety comes as China's economy is forecast to grow at its slackest rate in five years in the third quarter, as slower investment growth and a housing downturn increasingly dampened activity.
Analysts polled by Reuters forecast China's economy likely grew 7.2% in July-September, the weakest since the first quarter of 2009 when the world was smarting from the financial crisis.
With no recovery in sight, firms like Anhui Jinhe Industrial Co Ltd, which makes chemical products, said it would rather play safe. It plans to stop investing in expanding its capacity from this year for an unstated period of time, as it tries to cut corporate flab and increase automation, it said in its 2013 annual report in March.
"From 2014 onwards for a long period of time, the economic environment is likely to become more complicated," it said.
NO NEED FOR SO MUCH
Investment has long been a crucial driver of China's economy. It accounted for 54% of growth last year, with private investment making up as much as 63% of the total 43.7 trillion yuan ($7.1 trillion) spent.
Reflecting China's wobbly economy, data due later this month is expected to show annual investment growth slid to a near 13-year low of 16.2% in January-September.
Whether the slowdown was for the better part driven by China's cooling economy or engineered by authorities' efforts to wean the nation off heavy investment is unclear. But what is certain is that energy firms and machinery makers, the usual capex heavyweights, have led the latest savings drive alongside telecom firms and food, beverage and tobacco companies.
Petrochina Co Ltd, one of China's top two gas importers, is forecast to have slashed its investment by nearly 11 billion yuan this year from last, Reuters data shows - the first time it has cut investment since its 2000 stock market debut. Likewise, miner China Coal Energy is forecast to have pared spending by 7.5 billion yuan this year.
"For the traditional manufacturing sectors, I'm afraid their expenditure will continue to shrink," said Cai Jin, vice president at the China Federation of Logistics and Purchasing, which compiles China's official purchasing managers' index.
"Because of the structural reforms, there's no need for so much coal, so much iron ore and so much steel," Cai said.
After 30 years of breakneck, double-digit growth that lifted millions of Chinese out of poverty but also damaged the environment and left the government and banks with a pile of debt, China says it is ready for change. It wants to cut debt, reduce pollution and lift domestic consumption to prepare its maturing economy for slower but better quality growth.
The change, which entails weaning China's economy off exports, easy credit and heavy investment, would require the country to pay the price of living with slower growth in the short term. Analysts forecast economic growth of 7.4% this year.
As a result, firms like Hebei Iron & Steel, China's top steel maker, are bracing for more austerity. The company said earlier this year it would not embark on new projects in 2014 and would cap budgets following a government ban on new steel projects until 2017.
"Cash management is our core focus," it said at its September half-year results. "Given the supply-demand situation and the sector's falling profits, the tight financial situation has become the industry's 'new normal'."
