China’s industrial firms see profits grow at slowest pace since April 2020

China’s industrial firms saw December profits grow at their slowest pace in more than a year and a half, pointing to cooling demand amid mounting economic challenges for the world’s second-largest economy.

The downbeat data adds to expectations of strong supportive measures from the People’s Bank of China (PBOC) in the coming months to stabilise a faltering economy.

Coronavirus outbreaks have hit consumer spending, a property market downturn is deepening and exports look set to slow.

Hobbled by an easing in factory-gate inflation, industrial profits rose by 4.2 per cent year-on-year, the slowest rate since April 2020, according to the National Bureau of Statistics (NBS). That compares with a 9 per cent increase in November and a 24.6 per cent gain in October.

Figures for the whole of last year, however, showed a stellar rebound, with industrial profits surging by 34.3 per cent to 8.7 trillion yuan ($1.38 trillion) after just 4.1 per cent growth in 2020 when Covid-19 shutdowns pummelled the economy. It was the biggest jump since 2011 when the NBS began to disclose data more regularly.

The December figures point to a weak year this year and industrial profits could even decline in some months due to a high base of comparison in 2021, said Wang Jun, an economist at Zhongyuan Bank.

He also noted that a huge number of struggling small firms were not captured by official data, which only looks at companies with annual revenue of over 20 million yuan from their main operations.

“Constraining factors are building for China’s central bank. With the US Federal Reserve set to raise interest rates in March, time is running out for the PBOC to further ease policy,” said Wang.

Zero-Covid approach puts China at disadvantage to the West, economists warn

The PBOC, which has flagged more measures are in store,sprangprung into action over the past few weeks, unexpectedly cutting the borrowing costs of its medium-term loans for the first time since April 2020 and lowering benchmark lending rates.

Zhu Hong, a senior NBS statistician, noted the steep slowdown in industrial profit growth over November and December and said operational pressures facing manufacturers and a high number of loss-making companies were cause for concern.

“In the next step, we will … implement tax and fee cuts as well as measures to ensure supply and stabilise prices, in addition to vigorously helping firms to tackle difficulties,” he said.

China’s economy grew by 4 per cent in the fourth quarter from a year earlier, marking its weakest expansion in 18 months. The economy is set to expand by 5.5 per cent this year, an adviser to the government’s cabinet said last week.