China’s industrial profits bounce back in July, but long-term view remains negative amid trade war escalation

Profits at China’s large industrial firms recovered in July, posting year-on-year growth of 2.6 per cent, following a decline of 3.1 per cent slump in June

However the overall picture is negative, with total industrial profits down 1.7 per cent so far this year, led by an 8.1 per cent slump by state sector firms

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Employees work on the production line of a factory manufacturing fashion accessories in Sihong county, Jiangsu province, China March 27, 2019. Photo: Reuters

Published: 10:25am, 27 Aug 2019Updated: 4:18pm, 28 Aug 2019

Profits at China’s large industrial firms recovered in July, posting year-on-year growth of 2.6 per cent, following a decline of 3.1 per cent in June.

July’s growth was largely powered by the private sector, where industrial giants posted a 11.4 per cent rise in their profits. However, the broader picture shows that across the board, China’s industrial giants remain in relatively weak condition.

For the year-to-date to July, total industrial profits were down 1.7 per cent, largely due to a long-term slump in the profitability of state-owned enterprises (SOEs). In the January to July period, SOE profits stood at 1.09 trillion yuan (US$151.5 billion), a decrease of 8.1 per cent on the same period in 2018.

Again, the private sector outperformed the state-sector, with private sector profits up 7 per cent over the first seven months of the year, to 884.91 billion yuan (US$123.7 billion).

Those industries to have performed well from January to July include ferrous metals – including the sorts of steel used in bridge and skyscraper construction – which jumped 232.1 per cent on a year earlier, perhaps indicative of infrastructure stimulus from Beijing filtering into the real economy.

The year-to-date numbers were also positive for the food industry, which posted profit growth of 14.6 per cent, and machinery, up 15.6 per cent.

However, oil processing profits are down 50.6 per cent so far this year, smelting down 25.1 per cent, motor vehicles down 23.2 per cent, and manufacturing down 3.4 per cent – a batch of numbers suggesting that all is not well with China’s industrial economy.