In a notable development, China’s industrial companies experienced a slower growth in profits in October compared to the previous month, signaling persistent deflationary challenges and suggesting a delicate economic recovery in the final months of 2023.
According to data released by the National Bureau of Statistics, industrial profits rose by 2.7% year-on-year, a significant deceleration from September’s 11.9% surge and August’s 17.2% jump. The cumulative profits for the first ten months of 2023 showed a 7.8% decline compared to the same period last year, a slight improvement from the 9% fall recorded in the initial nine months.
In response to the profits data, China’s onshore CSI 300 Index and a gauge of Chinese stocks listed in Hong Kong both witnessed a decline of more than 1% in early Monday trading, positioning them among the worst performers in the Asia Pacific region, reflecting ongoing weak investor sentiment.
Xing Zhaopeng, Senior China Strategist at Australia & New Zealand Banking Group Ltd, attributed the profit challenges to pressures on commodity prices and weak domestic demand. He emphasized the potential downside risks to commodity prices, impacting the overall profit outlook.
While China’s industrial firms have started to witness profit growth due to increased government economic stimulus, challenges persist, including a contraction in manufacturing activity, an extended property slump, and lingering factory-gate deflation.
Policymakers are reportedly finalizing a draft list of developers eligible for financial support, indicating a shift by Beijing to aid some of the most distressed builders. Additionally, banks have been urged to increase funding for the sector, aiming to stabilize the economic landscape.
The decline in profits at state-owned enterprises moderated to 9.9% in the January-to-October period, compared to an 11.5% decrease in the time frame through September. In contrast, profits at private firms dropped 1.9% in the first ten months, while those at foreign firms fell 10.2%.
The subdued growth in profits is anticipated to maintain a cautious approach among industrial companies, potentially limiting expansion and hiring efforts. This, in turn, may exert additional pressure on prices, contributing to ongoing economic challenges.
Bloomberg Economics, represented by economist Eric Zhu, views the October rise in industrial profits as modest, highlighting its smaller scale compared to September and its reliance on a more favorable comparison to a challenging period in 2022. The data underscores the prevailing weak momentum in the industrial sector, reinforcing the need for accommodative policies into the next year to support a demand-led recovery.
The latest industrial profit data paints a nuanced picture of China’s economic landscape, indicating both progress and challenges. As the government continues to implement supportive measures, the nation navigates a delicate balance between sustaining growth and addressing persistent economic vulnerabilities.
By Bloomberg
