China’s industrial profits fell by 10% in October compared to the same period last year, marking the third consecutive month of decline as Beijing’s efforts to revive corporate earnings struggle to gain traction. This latest drop follows a staggering 27.1% year-on-year plunge in September, the steepest decrease since March 2020, reinforcing concerns about the financial health of the world’s second-largest economy.
Industrial profits, a key indicator of the performance of factories, mines, and utilities, reveal the ongoing challenges faced by China’s manufacturing sector. In the first ten months of 2024, profits at industrial firms declined 4.3% year-on-year, compared to a 3.5% drop in the period through September, according to data from the National Bureau of Statistics (NBS).
Stimulus Measures Show Limited Impact
Despite the continued decline, NBS noted that some improvement was seen in October, attributing the smaller decline to Beijing’s recent stimulus measures. “Most industries showed improved profitability from the previous month, particularly helped by the equipment and high-tech manufacturing sector,” said Yu Weining, an NBS statistician.
However, analysts believe that the measures are not yet sufficient to counteract persistent deflationary pressures and weak domestic demand. Eugene Hsiao, head of China equity strategy at Macquarie Capital, commented on the situation, saying, “The deceleration in the decline of industrial profits reflects a gradual stabilizing of Chinese economic conditions, albeit at a low base.” He added that further fiscal support from Beijing in 2025 might be necessary to lift corporate earnings meaningfully.
Profit Trends by Sector
Profit trends varied across different sectors:
- State-owned firms saw an 8.2% decline in profits during the January to October period.
- Private enterprises experienced a smaller decline of 1.3%.
- On the other hand, foreign industrial firms, including those with investments from Hong Kong, Macao, and Taiwan, managed a modest profit increase of 0.9% over the same period.
Broader Economic Indicators
China’s broader economic data paints a mixed picture:
- Consumer Price Index (CPI) in October rose by just 0.3% year-on-year, marking the slowest increase since June, while the Producer Price Index (PPI) fell 2.9%, deepening from the 2.8% drop in September.
- Industrial production grew slower than expected, and fixed asset investment in real estate declined by 10.3% through October, compared to a 10.1% drop in September.
- However, retail sales offered a glimmer of hope, growing 4.8% year-on-year in October, exceeding expectations. The unemployment rate also ticked down slightly to 5%, from 5.1% in September.
Outlook for the Future
China’s economic growth slowed in the third quarter of 2024, largely due to weak domestic consumption and a prolonged housing market downturn. To achieve its annual growth target of “around 5%,” Beijing has ramped up stimulus measures since late September. Despite these efforts, significant hurdles remain, including deflationary pressures and sluggish industrial performance.
Looking ahead, the release of China’s official manufacturing Purchasing Managers’ Index (PMI) for November on Saturday will provide further insights into the state of the economy. Economists polled by Reuters expect the PMI to rise slightly to 50.3, indicating marginal expansion compared to 50.1 in October.
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