By Qiaoyi Li, Joe Cash and Liangping Gao
BEIJING (Reuters) – China’s industrial profits in October narrowed their earlier declines, helped by a weak year-earlier base, official data showed on Wednesday, but headwinds to profits remain strong as the economy continues battling weak demand and deflationary pressures.
China’s growing industrial sector, which includes mining, processing and manufacturing companies, has struggled to remain profitable in the face of weak domestic demand hit by a years-long housing crisis, unemployment and rising trade tensions.
While policymakers promise to meet the government’s gross domestic product growth target of around 5% this year, the $19 trillion economy remains on the defensive.
Industrial profits in October fell 10% from a year earlier, better than a 27.1% drop in September, although profits fell 4.3% in the first 10 months versus a 3.5% drop in January-September, data from the National Statistics Office (BNE) showed. .
Profits in most industries improved compared with the previous month, with new drivers such as high-tech equipment and manufacturing playing a strong supporting role, NBS statistician Yu Weining said in an accompanying statement.
But some private sector economists attributed October’s improvement partly to the effect of a low base from a year earlier. Industrial profits in October 2023 grew 2.7%, up from double-digit gains in August and September last year.
“Just for the October monthly data, the year-on-year level has a lot of noise due to base effects, and the difference can largely be attributed to this,” said Lynn Song, chief Greater China economist at ING.
“Overall, earnings are still under some pressure this year, as shown by the 4.3% year-on-year decline so far this year, although there are hopes that as further policy easing begins to occur, the operating environment becomes more favorable next year.”
DEFLATIONARY PRESSURES
Separate economic indicators earlier this month pointed to generally weak demand, with consumer prices at their weakest level in four months, while industrial production continued on a downward trend and new home prices fell to its fastest pace in nine years.
Data from earlier this month showed producer prices fell 2.9% year-on-year in October, a deeper drop than the previous month’s 2.8% drop and worse than an expected 2.5% drop. It marked the biggest drop in 11 months.
Factory-level deflation deepened in the oil and extraction, oil and coal processing, chemical manufacturing, and automobile manufacturing sectors.
“Commodity and consumer goods manufacturing profits continue to face pressure to decline further,” warned Ma Hong, senior analyst at GDDCE Research Institute.
“Looking ahead to November, as the PPI remains in the negative range, the price of raw materials represented by coal is under pressure and the profit margins of industrial enterprises are still on a slow downward trend. “.
The industrial profit figures cover companies with annual revenues of at least 20 million yuan ($2.8 million) in their core operations.
China’s $1.4 trillion local debt package unveiled in early November fell short of expectations for strong stimulus to boost consumption, meaning investors are still waiting for a more direct fiscal bazooka.
State-owned companies saw their profits fall 8.2% in the first 10 months, foreign companies saw a 0.9% increase and private sector companies saw a 1.3% drop, according to a breakdown of the data. of the BNE.
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