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Slow growth in China’s industrial profits

ANN/THE STRAITS TIMES – Profits at China’s industrial firms extended gains for a third month in October, albeit at a slower pace. This suggests more policy support from Beijing is needed to help shore up growth.

The 2.7 per cent year-on-year rise sees profit growth narrow back to single digits, following an 11.9 per cent increase in September and a 17.2 per cent gain in August.

This puts pressure on the authorities to extend further assistance to manufacturers as soft global demand continues to dog policymakers heading into 2024.

Profits slid 7.8 per cent from a year earlier for the first 10 months of 2023, narrowing from a nine per cent decline in the first nine months, data from the National Bureau of Statistics (NBS) showed yesterday. China’s economy has struggled to mount a strong post-COVID-19 recovery as distress in the housing market, local government debt risks, slow global growth and geopolitical tensions dented momentum.

A flurry of policy support measures has had only modest effect, raising pressure on the authorities to roll out more stimulus.

China’s industrial output grew 4.6 per cent in October, compared with the same period a year earlier, buoyed by strong automobile and restaurant sales. PHOTO: THE STRAITS TIMES

“Three consecutive months of positive profit growth suggest that the worst times, when profitability was squeezed by high input costs, overcapacity and soft demand, are over,” said Economist Intelligence Unit economist Xu Tianchen.

“However, the volatility of profits is a sign that enterprises remain highly sensitive to input costs,” he added. “The sharp slowdown of year-on-year profit growth was partly driven by a rebound in energy prices.”

NBS said the authorities should “focus on expanding domestic demand and inspiring businesses”, in a nod to factories’ trade challenges.

Data for October has been mixed. Both new export and import orders shrank for an eighth consecutive month in October, according to the official purchasing managers’ index.

However, industrial output grew 4.6 per cent in October, compared with the same period a year earlier, buoyed by strong automobile and restaurant sales.

Goldman Sachs wrote in a note that “the divergence in profits across various sectors and firms remained significant”. Profits at furniture firms fell 11.8 per cent over the first 10 months of 2023 year on year while electronics manufacturers saw profits jump 20.8 per cent over the same period.

“Early signs of a comeback in the global electronics cycle will work in Chinese manufacturers’ favour,” said Xu, who warned of downside across the sector and overcapacity across electric vehicles, lithium batteries and solar cells in 2024.

Longi Green Energy Technology, a major domestic solar energy manufacturer, saw its third-quarter net profit plummet 44.1 per cent to CNY2.5 billion, hit by macroeconomic headwinds and a supply glut.

Yesterday, China’s central bank and other authorities called for more measures to strengthen financial support for private companies, including allowing increased issuance of loans, bonds and shares.