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China’s Industrial Profits Growth Slows, Sparks Policy Support Calls

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China's industrial profits growth slows, keeps stimulus calls alive

(CTN News) – Industrial enterprises in China extended their gains for a third month in October, although at a slower rate. This indicates that the world’s second-largest economy needs additional policy support from Beijing to help shore up growth.

After an 11.9% increase in September and a 17.2% gain in August, the 2.7% year-on-year rise brings profit growth back down into single digits, placing pressure on authorities to provide manufacturers with extra help as policymakers continue to be plagued by slow global demand heading into 2024.

The National Bureau of Statistics (NBS) said on Monday that profits for the first ten months of 2023 fell 7.8% compared to the same period last year, which was a narrowing of a 9% drop in the first nine months.

Distress in the property market, concerns over local government debt, sluggish global growth, and geopolitical tensions have all impeded China’s economic progress since COVID-19.

Authorities are under increasing pressure to implement additional stimulus measures, as a flurry of policy assistance initiatives has only had a minor impact.

The hardest days, when profitability was squeezed by high input costs, overcapacity, and lackluster demand, are over, according to Xu Tianchen, a senior economist at the Economist Intelligence Unit (EIU), who made this statement after three months of positive profit growth.

However, the volatility of profits is a sign enterprises remain highly sensitive to input costs,” according to him. “The sharp slowdown of year-on-year profit growth was partly driven by a rebound in energy prices.”

Authorities should “focus on expanding domestic demand and inspiring businesses,” the NBS stated, referring to the trade issues industries face.

In October, the data was all over the place.

In October, the official Purchasing Managers’ index (PMI) showed that new export and import orders dropped for the eighth month. Nevertheless, thanks to robust sales of automobiles and restaurants, industrial production increased 4.6% in October compared to last year.

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“The difference in profitability across diverse sectors and enterprises remained large,” according to a note from Goldman Sachs.

When comparing the first ten months of 2023 to the same period in 2022, one can observe that electronics manufacturers’ profits increased by 20.8% while furniture firms’ earnings decreased by 11.8%.

Global Electronics Comeback Benefiting China Manufacturers

“Early signs of a comeback in the global electronics cycle will work in China manufacturers’ favour,” said Xu of the EIU, who also issued a warning about overcapacity in solar cells, electric cars, and lithium batteries in 2024, as well as declines across the industry.

Major China solar energy maker LONGi Green Energy Technology Co., Ltd. (601012.SS) reported a 44.1% drop in net profit to 2.5 billion yuan ($346.7 million) in the third quarter due to supply glut and macroeconomic headwinds.

Several China agencies, including the country’s central bank, demanded more steps on Monday to bolster private enterprises’ access to capital, including the authorization of more loans, bonds, and shares.

“Transforming the economic growth mode is more important than pursuing a high growth rate,” the head of the central bank stated earlier this month, implying that investment-led growth is losing steam and that there is an immediate need for longer-term structural reforms.

After the data was released, the blue-chip CSI300 index in China sank 1.21%, and the Hang Seng in Hong Kong lost 1.07%.

Based on a breakdown of the NBS data, state-owned firms registered a 9.9% decrease in earnings in the first 10 months, foreign corporations a 10.2% dip, and private-sector companies a 1.9% decline.

Businesses are considered to have industrial profits if their yearly primary operations revenues are 20 million yuan ($2.74 million).

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