In October, industrial profits in China dropped by 10% year-on-year, indicating that the stimulus measures implemented by the Chinese Communist authorities have yet to reverse the trend of declining corporate profits.
This downturn reflects the struggles of Chinese industrial enterprises to maintain profitability amidst a prolonged real estate crisis, rising unemployment rates, and weakening domestic demand due to escalating trade tensions.
Following a 27.1% decrease in September, this marks the third consecutive month of decline in industrial profits. Industrial profits serve as a crucial indicator of the financial health of China’s factories, mines, and utilities.
The Chinese National Bureau of Statistics stated on Wednesday (November 27) that industrial enterprise profits in China have fallen by 4.3% year-on-year in the first ten months of this year. This compares to a 3.5% decline as of September.
During the period from January to October, profits of state-owned enterprises dropped by 8.2%, while those of private enterprises decreased by 1.3%. Foreign industrial enterprises, including those from Hong Kong, Macau, and Taiwan, saw a marginal increase of 0.9% in profits in the first ten months.
Areas such as petroleum and natural gas extraction, petroleum and coal processing, chemical manufacturing, and automobile manufacturing are experiencing deepening contractions in their factory sectors.
Ma Hong, a senior analyst at GDDCE Research Institute, remarked, “The raw materials manufacturing and consumer goods manufacturing sectors continue to face further downward pressure.”
Looking ahead to November, Ma Hong added, “With producer prices index (PPI) persisting in negative territory, pressures on raw material prices, exemplified by coal, are likely to keep industrial profit margins on a slow downward trajectory.”
Although analysts from the Chinese National Bureau of Statistics claim that the decline has eased compared to the 27.1% drop in profits in September, some economists believe that the improvement seen in October’s data is partly due to a lower base from the same period last year.
Lynn Song, Chief Economist of the ING Group in Greater China, indicated, “Regarding the monthly data for October alone, there are many noises in the year-on-year level due to base effects, which largely account for the differences.”
“In general, as evidenced by the 4.3% year-on-year decline since the beginning of the year, profits this year still face certain pressures,” Song remarked.
Recent data suggests that the latest stimulus measures by the Chinese authorities have only assisted certain economic sectors and are insufficient to offset lingering deflationary pressures. Moreover, with the implementation of additional tariffs by the United States after Trump’s presidency, China’s industrial sector may face further threats leading to reduced export income.
In October, China’s Consumer Price Index (CPI) saw a lower-than-anticipated increase of 0.3% month-on-month, hitting a new low since June. Meanwhile, the Producer Price Index (PPI) dropped by 2.9% year-on-year, below market expectations, signaling a further deepening of deflation from last month’s 2.8% annual decrease.
Industrial production growth in October in China also fell below market forecasts.
In terms of fixed asset investment, real estate development investment saw a 10.3% decrease in the twelve months leading up to October, surpassing the 10.1% decline as of September.
As the world’s second-largest economy, China’s economic growth in the third quarter hit the slowest pace since early 2023 due to weak domestic consumption and a long-standing slump in the real estate sector.
Since late September, the Chinese authorities have intensified stimulus policies to support the teetering economy, aiming to achieve the official growth target of around “5%.”
On Saturday, China will release the official Manufacturing Purchasing Managers’ Index for November. According to a Reuters survey of economists, the official PMI is expected to be 50.3, slightly higher than October’s 50.1.