July saw China’s industrial profits decline by 6.7% year-on-year, marking the seventh consecutive month of shrinkage. This dip reflects the broader challenge faced by the world’s second-largest economy in a post-pandemic environment. Even as the world tries to recover, the Chinese economy struggles to find its footing amid an array of challenges.
For some context, the first seven months of this year witnessed a staggering 15.5% decline in earnings, coming on the heels of a 16.8% contraction in the first half of the year, according to data from China’s National Bureau of Statistics (NBS). For further perspective, June itself saw a drop of 8.3%. Such consistent drops in industrial profits are clearly indicative of the systemic challenges facing China’s industrial sectors.
However, it’s essential to note that the NBS does not always release monthly figures. This infrequency means that each released report holds significant weight and is closely scrutinized for understanding economic trends and shaping future policies.
Addressing this, NBS statistician Sun Xiao commented, “With commodity prices currently running low, the pressure on raw material costs for both midstream and downstream industries has seen some relief.” He pointed out the silver lining, noting that the “unit cost for industrial enterprises has seen overall improvement.” Notably, July was the first month of this year where unit costs actually decreased year-on-year.
Yet, the bigger picture still remains concerning.
Prominent manufacturers in China, which once led profit charts, have posted concerning losses in the first half of the year. To illustrate, the engineering behemoth, China Aluminum International (2068.HK), reported a net loss of 830.6 million yuan ($114.2 million). In stark contrast, the same period last year had seen them posting a net profit of 123.6 million yuan. This dramatic reversal of fortune for such significant players in the industry can’t be ignored and points to deeper systemic issues.
This unsettling economic trend hasn’t escaped the attention of major banks either. Several of them have recalibrated their growth forecasts, projecting numbers that now sit below the government’s ambitious target of approximately 5%. The key culprits behind this downgraded optimism include a pronounced slump in the property market, frail consumer spending, and a stark decline in credit growth.
In response, the Chinese authorities haven’t remained passive. Efforts have been made to stabilize the economy, most notably by cutting interest rates and assuring further support to vital sectors. Yet, despite these interventions, several areas within the industrial sector continue to experience pain.
State-owned enterprises, long seen as the robust backbone of the Chinese economy, experienced a significant 20.3% dip in earnings over the first seven months. Meanwhile, foreign firms weren’t spared either, recording a 12.4% decline. Private-sector companies, often hailed for their agility and adaptability, also suffered with a 10.7% fall.
It’s important to emphasize the scale of this decline. Out of 41 significant industrial sectors, 28 faced a decline in profits. Among them, the ferrous metal smelting and rolling processing industry stands out, enduring a whopping 90.5% slump, the deepest among all.
In light of these challenges, China’s central bank has made its stance clear, expressing intent to maintain a “precise and forceful” policy to aid recovery. Yet, there’s widespread speculation and anticipation regarding whether more substantial measures will be introduced to bolster growth.
In a recent interaction, President Xi Jinping sought to instill confidence. Speaking at a forum in South Africa, he emphasized that the Chinese economy remains resilient. In his words, the fundamentals underpinning long-term growth haven’t changed. This assertion serves as a reminder of China’s historic ability to weather economic storms and bounce back stronger.
To understand the scope of the industrial profits discussed, it’s essential to know that these figures primarily cover firms that have annual revenues exceeding 20 million yuan ($2.77 million) from their main operations.
In conclusion, while current trends paint a challenging picture for China’s industrial profits, the nation’s track record and resilience provide hope. As with past economic challenges, a combination of policy interventions, business resilience, and global economic interplay will determine the trajectory of China’s industrial sector in the coming months and years.
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