China’s industrial profits suffer biggest slump this year, adds to economic woes

10:51 pm Thursday, September 26th, 2024

BEIJING (Reuters) -China’s industrial profits swung back to a sharp contraction in August for their biggest decline this year, official data showed on Friday, adding to a recent spate of bleak business readings that point to mounting pressure on the economy.

Profits plunged 17.8% in August from a year earlier following a 4.1% increase in July, while earnings rose at slower 0.5% pace in the first eight months compared with 3.6% growth in the January-July period, according to the National Bureau of Statistics (NBS).

The slump in August was due to factors such as “the lack of effective market demand, the greater impact of natural disasters such as high temperatures, heavy rains, and floods in some areas,” said NBS statistician Wei Ning.

A high statistical base last year also magnified the reversal, with falling profits in the automobile and equipment manufacturing industries weighing on the outcome, said Zhou Maohua, a macroeconomic researcher at China Everbright Bank.

A sluggish run of data earlier this month has exacerbated worries about an anaemic recovery, prompting global brokerages to revise down their 2024 China growth forecasts to below the official target of around 5%.

Highlighting weak domestic demand, a key bottleneck for the economy amid job security anxiety and worsening slumps in property sales and investment, domestic dairy giant Inner Mongolia Yili Industrial Group Co posted a 40% fall in second-quarter net profit.

“Domestic consumer demand remains weak while the external environment is complex and changeable,” said NBS’ Wei.

To pump some much-needed optimism into the economy, China’s central bank announced on Tuesday the most aggressive stimulus since the pandemic, including a 50 basis point cut on banks’ reserve requirements.

   But analysts warned more demand-side easing, especially fiscal help, would be vital to restore confidence.

Chinese leaders on Thursday vowed “necessary fiscal spending” to hit this year’s economic growth target. 

   China plans to issue $284 bln of sovereign debt this year as part of a fresh fiscal stimulus, with part of the proceeds raised via special bonds used to provide a monthly allowance of $114 per child to all households with two or more children, excluding the first child, Reuters reported.

   State-owned firms saw profits down 1.3% in January-August, foreign firms recorded a 6.9% rise, while private-sector companies posted a 2.6% increase, a breakdown of NBS data showed.

   Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.83 million) from their main operations.

($1 = 7.0565 Chinese yuan)

(Reporting by Qiaoyi Li and Ryan Woo; Editing by Sam Holmes and Shri Navaratnam)