Trade war robbing Peter to pay Paul as China’s plummeting industrial profits only tell part of the story

Industrial profits plunged 9.9 per cent in October compared to a year earlier, the largest drop since the data was first reported in 2011

Trade-related industries under pressure, but infrastructure-related sectors benefiting from government stimulus efforts to offset trade war with the US

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Trade related industries, such as chemicals, paper, and car parts, all posted double-digit profit declines in October, while industries that contribute to infrastructure construction projects had profits that more than doubled over the last year, ING economists said in a note. Photo: Reuters

Published: 5:15am, 29 Nov 2019Updated: 11:05am, 10 Dec 2019

The strongly negative cumulative impact the trade war is having on the Chinese economy was highlighted in industrial profits figures released this week, but behind the record drop, the data also suggested the potential for recovery if US tariffs are rolled back significantly as part of a “phase one” trade deal.

Chinese industrial firms in trade-related industries saw their profits fall sharply in October as a direct consequence of the trade war, Chinese government data revealed when it was released on Wednesday.

However, companies involved in infrastructure construction in some way were seen to be doing quite well thanks to strong government support for such projects in an effort to offset the impact of the trade war with the United States.

The deal to cool the trade tensions between the world’s two largest economies could be close, with one senior US official telling POLITICO on Wednesday that only “millimetres” separated the two sides from reaching an agreement.

How much the tariffs will be rolled back as part of a deal remains unclear, but it is expected, at the very least, to include the postponement of a planned US tariff of 15 per cent on US$156 billion of Chinese imports, including popular electronic products including smart phones and laptops, due to come into effect on December 15.