China’s Industrial Profits Experience Largest Decline This Year, Contributing to Economic Challenges, Reports Reuters

BEIJING (Reuters) – Industrial profits in China saw a significant decline in August, marking the steepest drop this year, according to official data released on Friday. This downturn contributes to a series of disappointing business indicators that highlight increasing pressures on the economy.

Profits fell by 17.8% in August compared to the same month last year, following a 4.1% increase in July. Over the first eight months of the year, earnings rose only 0.5%, a slowdown from the 3.6% growth recorded in the January-July period, as reported by the National Bureau of Statistics (NBS).

Key factors behind the August slump included weak market demand and the adverse effects of natural disasters, such as extreme temperatures, heavy rainfall, and flooding in some regions, according to NBS statistician Wei Ning. Additionally, a high statistical base from the previous year amplified the decline, particularly with a downturn in profits in both the automobile and equipment manufacturing sectors, as explained by Zhou Maohua, a macroeconomic researcher at China Everbright Bank.

The ongoing weak economic data has further fueled concerns regarding a sluggish recovery, prompting global financial institutions to lower their growth forecasts for China in 2024 to below the official target of approximately 5%.

The lack of domestic demand remains a critical obstacle for the economy, which is already grappling with job security issues and declining property sales and investment. For instance, domestic dairy leader Inner Mongolia Yili Industrial Group Co reported a 40% drop in net profit for the second quarter.

“Weak consumer demand persists domestically while external challenges continue to evolve,” remarked NBS’s Wei.

In an effort to revitalize the economy, the central bank of China announced on Tuesday its most aggressive stimulus measures since the pandemic, which includes a 50 basis point reduction in banks’ reserve requirements.

However, analysts caution that enhancing demand, particularly through fiscal support, is essential to restore economic confidence. Chinese leadership has committed to “necessary fiscal spending” to achieve this year’s economic growth goal.

As part of a new fiscal stimulus initiative, China plans to issue $284 billion in sovereign debt this year, with part of the funds raised through special bonds allocated to provide monthly allowances of $114 per child to households with two or more children, excluding the first child.

Data from the NBS indicated that profits at state-owned enterprises decreased by 1.3% from January to August, while foreign firms experienced a 6.9% increase, and private-sector companies reported a 2.6% rise.

Industrial profit statistics cover companies with annual revenues of at least 20 million yuan from primary operations.