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. In a statement accompanying the July figures, the National Bureau of Statistics (NBS) pointed to a large increase in profits in the electrical machinery sector, which jumped 30.8 per cent. July was the second full month in which tariffs on US$250 billion of Chinese exports to the United States were at the higher rate of 25 per cent. However, with significant escalation in trade war tariffs over the past week, producers and exporters can expect tougher times ahead. The slight bump in the profitability numbers was telegraphed in July’s purchasing managers’ index (PMI), which – while remaining in negative territory at 49.7 – was an increase on the 49.4 figure in both May and June and better than analysts’ expectations. The PMI survey showed that manufacturers and factory owners in China remained downbeat about their prospects, as the pressures of the trade war with the United States continued to mount. Later this week, the PMI – a gauge of sentiment among factory operators, with 50.0 being the demarcation line between expansion and contraction in manufacturing activity – will be released for the month of August. While many US buyers will doubtless have engaged in front-loading, that is advance buying of goods before new tariffs kick in on September 1 and December 15, respectively, the consensus is that China’s manufacturing outlook will remain in contractionary territory. “As we believe the economy will continue to face strong headwinds, especially from the US-China trade tensions and a worsening property sector, we expect Beijing to maintain its easing policy stance in the second half [of 2019]. The worst is yet to come,” wrote analysts from Japanese bank Nomura in a note. Additional reporting by Orange Wang