China’s economic slowdown is showing up in the books of publicly traded companies as growth in profitability suffered with margins eroded by a surge in raw-material costs. Companies listed on the Shanghai and Shenzhen exchanges reported a 25.6 per cent average growth in profit in the three months to September 30, based on data compiled by China International Capital Corp (CICC). It slipped from a 43.7 per cent pace in the first six months. Revenue growth also slowed to 23.2 per cent in the third quarter from 26.7 per cent in the first six months, according to the nation’s biggest investment bank. Carmakers, home-appliance manufacturers, retailers and textile companies registered the biggest decline in profitability, while earnings at petrochemical firms, metal and coal producers and steelmakers at least doubled, CICC said in a November 1 report. The divergence underscores how China’s runaway factory-gate inflation impacted corporate earnings, prompting money managers to adjust their funds to salvage what is set to be another rotten year for investors. The CSI 300 Index and the Hang Seng Index have both declined by more than 7 per cent this year. “It is a reflection of surging raw-material prices squeezing profits of mid- and downstream industries, particularly against the backdrop of relatively inadequate demand,” said Ai Xiongfeng, an analyst at Sinolink Securities. Producer prices rose in September at the fastest pace in 25 years as prices of coal soared, raising the cost of energy production. Many power-generation firms cut output, resulting in a widespread power crunch in many mainland provinces and crippling manufacturing activity. Some sporadic outbreaks in Covid-19 infection also led to movement curbs, restraining consumer spending. Retail sales grew at an annual rate of 4.4 per cent in September versus 2.5 per cent in August and compared with a monthly rate of 12.1 per cent to 34.2 per cent in the first half, according to government reports. Gauges tracking commodity and energy producers have risen at least 14 per cent this year, among the best-performing industry groups in the CSI 300 Index, according to Bloomberg data. Consumer and pharmaceutical companies are the worst performers with declines of at least 15 per cent. The average return-on-equity ratio for all the listed companies shrank by 0.35 percentage point, according to Ai at Sinolink. More than half of the industry groups in the index recorded lower profits in the third quarter, the CICC report showed, with the animal husbandry sector gripped by industry-wide loss following a slump in pork prices. Third-quarter results also showed resilient sentiment on new-energy vehicles and photovoltaic sectors, buoyed by the campaign to curb carbon emissions. Defence-related stocks benefited from heightened geopolitical tensions. CICC recommended adding stocks of companies in the downstream sectors, particularly consumer companies as a slew of measures taken by the government to rein in price gains are expected to take hold. China intervened in the market to boost coal supply and tame prices. “Concerns about profits for the mid and downstream industries may have eased a bit after the release of third-quarter results,” analysts led by Wang Hanfeng at the investment bank wrote in a note. “We need to monitor how policies will be implemented to resolve the issue of stagflation.” Chinese money managers added holdings of new-energy, pharmaceuticals and small liquor distillers in the third quarter, while trimming positions in technology juggernauts and companies with exposure to the property industry, according to mutual funds’ quarterly reports.