China remains a topic of concern for analytical-instrument and laboratory-product companies as delays in sales this year have slowed growth. New developments in the country could further affect sales growth, which remained stymied in the third quarter, according to PerkinElmer, Thermo Fisher Scientific and Waters.

On a macroeconomic level, China’s National Bureau of Statistics reported this month 7.3% GDP growth for the third quarter, the slowest quarterly growth since the first quarter of 2009, down from 7.5% in the second quarter. Reuters reported on October 16 that its analysis of 335 Chinese companies showed that the companies plan to decrease capital spending by 7.3% this year, or CNY 74 billion ($16.3 billion = CNY 6.14 = $1). Cuts at industrial manufacturing firms lead the decline.

A new announcement also casts uncertainty on future spending patterns. In an effort to end corruption and manage R&D more efficiently, this month, the Chinese government announced plans to reform how it distributes research funds. China Daily reported on October 22 that under a plan led by the Ministry of Science and Technology, and the Ministry of Finance, a third-party agency will be put in charge of research funding, with “professional institutes” allocating funds. An example of such an institute that already exists is the National Natural Science Foundation, but others may be established, according to Xinhua News Agency. Science reported that implementation is expected to take 3 to 5 years. Further details will be forthcoming.

This follows a September 30 report by Xinhua that the Chinese Ministry of Science and Technology will begin to investigate annually the misuse of R&D funding at certain scientific institutes. In addition, an October 16 report by Xinhua stated that the Ministry of Education will begin an investigation into the misappropriation of research funds at 30 universities. Earlier this month, seven professors were accused by the Communist Party of China Central Commission for Discipline Inspection of having misused $4 million in research funding. Four arrests were made.

Such a reorganization could affect spending by the country’s state-funded laboratories, just as a reorganization at China’s FDA (see IBO 3/15/13) and corruption investigations have delayed instrument spending this year in certain markets (see IBO 5/31/14, 8/31/14). In the third quarter, this trend appeared to continue. Waters reported a 5% decline in Chinese sales, but orders increased. Asked by an analyst on the company’s third quarter conference call what end-markets were affected, Douglas Berthiaume, Waters president and CEO, answered, “I don’t think one is being disproportionately singled out, where it’s a cut back in health care spending. I think it’s just this general concern that is capsulized in this crackdown on corruption that I think has generally resulted in almost everybody in the approval chain taking longer to make sure all i’s are dotted, t’s are crossed and, even when they are, they go back for a second and third check.” The company noted a stabilization in orders in the second and third quarter compared to the first quarter. “I think it’s good sign that we’re able to actually book these orders, but it’s still tough to get through the payment processes and the bank clearances in order to get revenue recognition,” said Mr. Berthiaume.

Thermo Fisher Scientific reported low single digit growth for China in the third quarter, a slight increase from the second quarter. The company cited its Analytical Instruments segment as being particularly affected. As President and CEO Marc Casper told analysts on the company’s third quarter conference call, “What we saw in China was a slow release of funds across the markets. And we think that’s being driven by the government, both in how they’ve reorganized the food safety administration as well as their focus on transparency and, you know, cracking down on corruption. And the approval times to get fund releases is definitely extended significantly.”

For PerkinElmer, revenue grew in the high single digits in China, as weakness in sales for its Environmental segment in the country was offset by revenue growth for the company’s Diagnostics and Research businesses. Responding to an analyst’s question about growth in China, Robert Friel, president and CEO, stated on the company’s third quarter conference call, “I think the area where your comments are more germane is really around the environmental or, more specifically for us, the food area, where we have seen sort of declining revenue over the last couple of quarters as these tenders have sort of backed up.”