China’s industrial profits rebound as optimism over 2020 economic prospects grows

Profitability at Chinese industrial enterprises improved significantly in November – the latest figures that have given economists cause for optimism about China’s prospects for next year.

Combined profits at industrial enterprises rose 5.4 per cent in November from a year earlier, a sharp rebound from a year-on-year drop of 9.9 per cent in October, according to figures released by China’s National Bureau of Statistics on Friday.

Profits at private industrial enterprises surged 14.7 per cent – reflecting a significant boost for the sector amid a government drive to provide it with more support.

Meanwhile, profits at state-owned enterprises rose 0.6 per cent, reversing months of decline.

In the first 11 months, industrial profits in China fell 2.1 per cent from the same period last year, but this has eased from the 10-month figure of 2.9 per cent.

The improvement was in line with a broad-based recovery in the country’s industrial production, retail sales and fixed-asset investment last month – all of which support the increasingly upbeat outlook among economists about China’s growth prospects for 2020.

The agreement of an interim trade deal with the United States has also boosted confidence about the year ahead.

Liu Shangxi, head of the Chinese Academy of Fiscal Sciences, a think-tank under the Ministry of Finance, said that the deal had reduced uncertainty.

“If the phase one deal is inked, private investors will be more confident and investment will bottom out. Next year will be no worse than this year, and [gross domestic product] growth could be around 6 per cent or a little bit higher,” he told a seminar in Beijing.

Li Chao, chief economist at Huatai Securities, wrote in a note that industrial profitability would be stable in 2020.

“Production of raw materials and equipment has accelerated in the fourth quarter after Beijing sent a clear message about stabilising growth, which led to a noticeable increase in industrial value output,” Li wrote. “There’s no need to be pessimistic about profitability in 2020.”

At the same time, concerns about economic weakness remain.

Nomura economists Jian Wang and Ting Lu wrote in a note that the surge in industrial profit growth could be “short-lived” due to strong “growth headwinds” and the high degree of uncertainty that still surrounds future US-China trade relations.

Additional reporting by Jane Cai