Annual profits at China’s industrial firms extended a double-digit decline in the first five months as softening demand squeezed margins, reinforcing hopes of more policy support to bolster a stuttering post-COVID economic recovery.
The 18.8% year-on-year slump in profits came on top of the 20.6% contraction in January-April, and added to evidence of an economy that was losing steam on many fronts in May including retail sales, exports and property investment as youth jobless rate scaled a fresh high of 20.8%.
“The still slow recovery in industrial profits pointed to sustained difficulties facing business operations,” said Wu Chaoming, deputy director of the Chasing International Economic Institute.
Wu said the corporate struggles strengthen the case for more policy measures to help companies.
Offering some hope of a turnaround, auto manufacturers saw a doubling in year-on-year profit in May, although the jump partly reflected the poor performance last year when COVID curbs took a heavy toll on business.
“As the external environment becomes increasingly complicated and severe, domestic demand still appears to be insufficient, weighing on further recovery in industrial profits,” said NBS statistician Sun Xiao in an accompanying statement, noting that the foundation for a revival in industrial profits is still not solid.
Profits sank for 24 of 41 major industrial sectors during the period, with the petroleum, coal and fuel processing industry reporting the heftiest slump at 92.8%.
MORE POLICY SUPPORT
The patchy recovery in the world’s second-biggest economy has prompted S&P Global, Goldman Sachs and other global agencies to ratchet down their China growth forecasts for this year in recent weeks.
Many economists expect policymakers to deliver more support measures to stabilise the economy as it faces pressure at home and softening demand in its major overseas markets.
To shore up the faltering rebound, China last week cut its key lending benchmarks for the first time in 10 months. It also unveiled a 520 billion yuan package of purchase tax break on new-energy vehicles through the end of 2027.
China’s second-quarter economic growth will be higher than that in the first quarter, Li said, adding that it’s expected to achieve the 2023 growth target of around 5%.
Still, the government has taken a cautious approach to reviving the economy amid lingering concerns over local government debt and other longer-term risks.
Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.77 million) from their main operations.
The recent decline in China’s industrial profits undoubtedly raises concerns and casts a shadow on the overall economic landscape. This situation demands a careful analysis of the contributing factors and a strategic response to address the challenges at hand. As a major player in the global economy, China’s industrial performance has far-reaching implications, and understanding the underlying causes behind the profit downturn becomes crucial. It presents an opportunity to reassess and adapt economic policies, explore innovative solutions, and foster resilience in the face of adversity. By staying proactive and seeking sustainable measures, China can navigate this economic gloom and pave the way for a brighter future.
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