China economy

China’s September industrial profit growth slows for the fifth month as trade war shows impact

  • China’s industrial profits rose 4.1 per cent in September from a year ago to 545.5 billion yuan
PUBLISHED : Saturday, 27 October, 2018, 4:30pm
UPDATED : Saturday, 27 October, 2018, 11:15pm

Profit growth in China’s industrial enterprises slowed for the fifth month, weighed down by sluggish production and sales, as the world’s second-largest economy faces mounting headwinds from its trade war with the United States.

China’s industrial profits rose 4.1 per cent in September from a year ago to 545.5 billion yuan (US$78.6 billion), slower than the 9.2 per cent increase in August, according to the National Statistics Bureau’s data, released on Saturday.

“Chinese growth looks set to slow as the effects of earlier efforts to de-leverage the economy are now being (unintentionally) reinforced by downwards pressure from trade and other concerns,” said Tuan Huynh, Deutsche Bank Wealth Management’s chief investment officer, in an October 26 note before the latest statistics were released. “The big questions here relate to the likely resilience of Chinese domestic consumption and the complicated policy cocktail that China will use in response.”

Profit for the first nine months increased by 14.7 per cent from a year ago to 4.97 trillion yuan, driven by earnings of companies producing steel, building materials, oil and petrochemicals, according to the statistics bureau. Compared with the first eight months of the year, the profit growth slowed by 1.5 percentage point.

Earnings in September were weighed down by slower production and sales, stagnation in prices and a higher statistical base a year earlier, He Ping of the statistics bureau said in a statement.

Slower earnings added to the woes of China’s manufacturers, with the sector’s output expanding at its slowest monthly pace since October 2015, growing 5.8 per cent in September, compared with 6.1 per cent in August.

China’s economy, which expanded in the third quarter at its slowest pace in a decade, is likely to slow further in the coming months, as the ongoing trade war with the US takes its toll, according to Moody’s Analytics.

“Tariffs on exports to the US have not yet had a material impact on China’s real economy, but indicators of manufacturing sentiment along with growing anecdotes of some supply chains avoiding assembly in China, particularly at the final stage, suggest that the impact will rise

heading into 2019,” Moody’s analysts Steven Cochrane, Katrina Ell and Veasna Kong wrote on October 2.

That underscores the policy initiatives and administrative measures announced by the Chinese government in recent days to kick the stalling economy into higher gear.

Last week, the central bank and financial regulators urged banks to cut some slack for private enterprises and medium-sized companies, giving them the breathing room to survive the trade war and a stock market rout.

Is Chinese capitalism in crisis, as stock market rout drives private companies into the state’s arms?

The People’s Bank of China said it would provide 10 billion yuan in initial funding to support private firms’ bond issuance, while the Ministry of Finance State Administration of Taxation have also announced income tax cuts to help boost private consumption.

The banking and insurance regulator also stepped in to urge lenders to avoid any forced liquidation of pledged shares, part of the effort to help stabilise the Chinese stock market, according to a report by the financial magazine Yicai, citing sources it did not identify.

As much as 4.5 trillion yuan (US$648 billion) of loans had been extended in China using corporate equities as collateral.