China’s industrial profits in November saw a significant increase of 29.5%, demonstrating a double-digit growth as overall manufacturing improved. This rise follows a 2.7% increase in October and a pickup in industrial output. The manufacturing sector’s positive performance contributed to the overall improvement, providing an optimistic outlook for the country’s economic recovery post-COVID.
Despite the encouraging growth, soft demand continues to constrain business growth expectations, urging calls for additional macro policy support. The National Bureau of Statistics (NBS) reported a 4.4% shrinkage in industrial earnings in the first 11 months of 2023, narrowing the decline from January to October, which stood at 7.8%.
The accelerated uptick in industrial profits and returns on investments played a significant role in the November profit increase, according to NBS statistician Yu Weining. The implementation of pro-growth measures, a low statistical base from the previous year, and seasonal factors also contributed to the upward trend.
Analysts, such as Zhou Maohua from China Everbright Bank, point out that the rise in industrial output and earnings indicates an overall improvement in the manufacturing sector. However, the unevenness across industrial segments remains evident. While high-tech and equipment manufacturers experience rapid profit growth, property-related sectors continue to face challenges with shrinking profits.
To sustain and strengthen growth, analysts hope for an “optimized” mix of macro policies that can support the various industrial sectors. While the Chinese government has implemented pro-growth measures to aid industrial firms, persisting weaknesses in the property sector, rising deflationary pressures, and soft global demand highlight the need for additional stimulus.
Chemicals producer, Do-Fluoride New Materials Co, foresees a significant drop in net profit for 2023 due to intensified competition and weaker-than-expected downstream demand. Zheng Houcheng, chief macroeconomist at Yingda Securities, believes there is little chance for industrial profits to return to growth throughout the year, given the continued pressure on China’s producer prices.
A breakdown of the data reveals varying performance among different ownership structures. State-owned firms reported a 6.2% decline in earnings over the first 11 months, foreign firms experienced an 8.7% fall, while private-sector companies posted a 1.6% gain. These figures highlight the importance of considering the unique challenges and opportunities faced by different types of businesses in the current economic landscape.
China’s November industrial profits showcased a significant double-digit gain, driven by an overall improvement in the manufacturing sector. However, challenges persist due to soft demand, property sector weaknesses, and global economic uncertainties. To support the ongoing recovery, an “optimized” mix of macro policies is essential. By tailoring measures to the unique needs of different industrial segments and ownership structures, China can navigate the challenges and build a resilient and sustainable economic future.
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