China’s Industrial Profits Decline Sharply in August

BEIJING (Reuters) – China’s industrial profits saw a significant contraction in August, marking the largest decrease this year, according to official data released on Friday. This decline adds to a concerning trend of bleak business readings that signal increasing pressure on the economy.

Profits dropped by 17.8% in August compared to a year earlier, following a 4.1% increase in July. Meanwhile, earnings increased at a slower rate of 0.5% in the first eight months of the year, down from a 3.6% growth rate in the January-July period, the National Bureau of Statistics (NBS) reported.

The August slump was attributed to factors such as lacking effective market demand and the severe impact of natural disasters, including extreme temperatures and heavy rains. NBS statistician Wei Ning noted these challenges.

A higher statistical base from last year also contributed to the decline, with reduced profits in the automobile and equipment manufacturing industries further affecting results, said Zhou Maohua, a macroeconomic researcher at China Everbright (OTC:CHFFF) Bank.

Recent sluggish data has intensified concerns about a weak recovery, leading global brokerages to revise their 2024 growth forecasts for China down to below the government’s target of approximately 5%.

The domestic demand weakness remains a critical issue for the economy, exacerbated by job security concerns and declining property sales and investment. For instance, domestic dairy leader Inner Mongolia Yili Industrial Group Co reported a 40% drop in second-quarter net profit.

Wei from the NBS mentioned, “Domestic consumer demand remains weak while the external environment is complex and changeable.”

To instill some optimism into the economy, China’s central bank announced on Tuesday its most robust stimulus measures since the pandemic began, which includes a 50 basis point cut in banks’ reserve requirements.

However, analysts cautioned that additional demand-side easing, particularly in fiscal support, is crucial to restore confidence.

Chinese leaders pledged on Thursday to implement necessary fiscal spending to achieve this year’s economic growth target. China plans to issue $284 billion in sovereign debt this year as part of a new fiscal stimulus package, with some funds allocated through special bonds to provide a monthly allowance of $114 for all households with two or more children, excluding the first child, Reuters reported.

According to the NBS data breakdown, state-owned enterprises experienced a 1.3% profit decline from January to August, while foreign companies saw a 6.9% profit increase, and private-sector firms reported a 2.6% rise. Industrial profit statistics pertain to firms earning at least 20 million yuan ($2.83 million) from their primary operations.

($1 = 7.0565 Chinese yuan)