Slowing industrial profit growth in China keeps stimulus calls alive

BEIJING (Reuters) – Chinese industrial corporate profits continued to gain for a third straight month in October, albeit at a slower pace, suggesting more policy support is needed from Beijing to help support growth in the world’s second-largest economy.

The 2.7% year-on-year rise saw profit growth shrink into single digits, after an 11.9% increase in September and a 17.2% increase in August, putting pressure on authorities to provide more aid to manufacturers as global demand remains weak. Dog decision makers are looking toward 2024

For the first 10 months of 2023, profits fell by 7.8% compared to the previous year, compared to a 9% decline in the first nine months, data from the National Bureau of Statistics showed on Monday.

China’s economy is struggling to mount a strong post-Covid-19 recovery, as distress in the housing market, local government debt risks, slowing global growth and geopolitical tensions dampen momentum.

A wave of policy support measures has had only a modest impact, increasing pressure on the authorities to roll out more stimulus.

“Three consecutive months of positive earnings growth suggest that the worst times, when profitability was squeezed by rising input costs, excess capacity and weak demand, are over,” said Xu Tianchen, chief economist at the Economist Intelligence Unit (EIU).

“However, earnings volatility is a sign that companies are still very sensitive to input costs,” he added. “The sharp deceleration in year-over-year earnings growth was driven in part by the rebound in energy prices.”

The National Bureau of Statistics said authorities should “focus on expanding domestic demand and inspiring businesses,” referring to the business challenges faced by factories.

Data for October was mixed.

New export and import orders contracted for the eighth straight month in October, according to the official Purchasing Managers’ Index (PMI). However, industrial production grew 4.6% in October, compared with the same period a year earlier, supported by strong auto and restaurant sales.

“The variation in earnings across sectors and companies remained significant,” Goldman Sachs wrote in a note.

Furniture companies’ profits fell by 11.8% during the first 10 months of 2023 on an annual basis, for example, while electronics manufacturers saw profits jump by 20.8% during the same period.

“Early signs of a return to the global electronics cycle will work in Chinese manufacturers’ favor,” said the Economist Intelligence Unit’s Xu, who warned of downside across the sector and excess capacity across electric vehicles, lithium batteries and solar cells in 2024.

LONGi Green Energy Technology Co (601012.SS), a major domestic solar manufacturer, saw its third-quarter net profit fall 44.1% to 2.5 billion yuan ($346.7 million), hurt by macroeconomic headwinds and oversupply.

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

“Transforming the pattern of economic growth is more important than striving for a high growth rate,” the central bank governor said earlier this month, signaling the urgent need for long-term structural reforms as investment-led growth loses steam.

China’s blue-chip CSI300 index fell 1.21% after the data while Hong Kong’s Hang Seng lost 1.07%.

State-owned companies recorded a 9.9% drop in profits in the first 10 months, foreign companies recorded a 10.2% drop, and private sector companies saw a 1.9% drop in profits, according to data from the National Bureau of Statistics.

The industrial earnings data covers companies with annual revenues of at least 20 million yuan ($2.74 million) from their main operations.

($1 = 7.2922 Chinese yuan)

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