BEIJING- Profits at China’s industrial firms extended gains for a third month in October, albeit at a slower pace, suggesting more policy support from Beijing is needed to help shore up growth in the world’s second-largest economy.
The 2.7 percent year-on-year rise sees profit growth narrow back to single-digits, following an 11.9 percent increase in September and a 17.2 percent gain in August, putting pressure on authorities to extend further assistance to manufacturers as soft global demand continues to dog policymakers heading into 2024.
For the first 10 months of 2023, profits slid 7.8 percent from a year earlier, narrowing from a 9 percent decline in the first nine months, data from the National Bureau of Statistics (NBS) showed on Monday.
China’s economy has struggled to mount a strong post-COVID 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 authorities to roll out more stimulus.
“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 Xu Tianchen, senior economist at the Economist Intelligence Unit (EIU).
“However, the volatility of profits is a sign 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.”
The NBS said 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 (PMI). However, industrial output grew 4.6 percent in October, compared with the same period a year earlier, buoyed by strong autos 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 percent over the first 10 months of 2023 year-on-year, for example, while electronics manufacturers saw profits jump 20.8 percent over the same period.
“Early signs of a comeback in the global electronics cycle will work in Chinese manufacturers’ favor,” said the EIU’s Xu, who warned of downside across the sector and overcapacity across electric vehicles, lithium batteries and solar cells in 2024.
LONGi Green Energy Technology Co a major domestic solar energy manufacturer, saw its third quarter net profit plummet 44.1 percent to 2.5 billion yuan ($346.7 million), hit by macroeconomic headwinds and a supply glut. – Reuters
