China’s industrial profit growth slows, underscoring urgent need for policy pivot
A double-digit percentage drop last month pulled down China’s industrial profit growth to just 0.5 per cent in the first eight months of the year
Growth of profits among China’s largest industrial enterprises decelerated for the first eight months of this year, partly underscoring the urgency behind Beijing’s latest stimulus measures and its push to shore up the economy at an unexpected Politburo meeting to prioritise the recovery.
For the first eight months of this year, industrial profits grew by 0.5 per cent, year on year, to 4.65 trillion yuan, slowing from the 3.6 per cent growth recorded in the first seven months, according to data released by the National Bureau of Statistics (NBS) on Friday.
For the single month, total profits at industrial enterprises with annual revenues of at least 20 million yuan (US$2.85 million) dropped in August by 17.8 per cent, year on year, sharply reversing a 4.1 per cent gain in July.
“The industrial profits on a monthly basis are volatile due to the base effect, but the overall trend is clear that the manufacturing sector faces pressure on their profit margins due to weak domestic demand,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“Lower corporate profits lead to lower tax revenue for the government and poor demand in the labour market. The policy pivot at the Politburo meeting was in response to the economic challenges these data points indicate.”
Yu Weining, a statistician with the NBS’s industrial division, attributed the weak August figures to “insufficient market demand, the impact of natural disasters such as high temperatures, heavy rainfall, and floods on certain regions, as well as a higher base in August compared with July”.
“Industrial profits over the first eight months maintained a growth trend, with new momentum in hi-tech manufacturing driving faster expansion,” Yu added.
For China, boosting domestic demand is “always a thrust of economic development,” said Zhang Shaogang, vice-chairman of the China Council for the Promotion of International Trade – a semi-official trade body.