China's economy will slow but not collapse, says business survey

Current market perceptions of China are "thoroughly divorced" from the reality on the ground, according to the latest China Beige Book (CCB) survey, which has found that while the economy slowed in the third quarter, there are no signs of an impending growth collapse.

 "In the aftermath of the stock market collapse and a surprise currency action in August, global sentiment on China has veered sharply bearish—too bearish," Leland Miller, president of CBB said. 

The quarterly private sector survey, which resembles the U.S. Federal Reserve's Beige Book, is based on interviews with over 2,100 companies across the country in a variety of sectors, ranging from retail to real estate. Corporate revenue growth, although weaker than the second quarter, actually improved over the first quarter, and was stable in on-year terms, according to CBB. 

Concerns over deflation in China, fueled by the plummeting producer price index (PPI), are overblown, according to CBB. Yet Miller said lower interest rates are unlikely to do the trick, as CBB's 2014 Q3 data has shown that interest rates have dropped considerably already, at banks and shadow financials as well as in terms of bond yields.

While this leaves the door open for fiscal support, Miller says China's track record with fiscal stimulus is questionable. "The 2009 binge, for example, was carried out through bank loans and corporate investment, not net government spending increases," he said. "While China is not without policy tools, we stand in uncharted territory."

Source: CNBC