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China industrial profits extend double-digit slide on weak demand

Published Jul 26, 2023 09:49PM ET Updated Jul 26, 2023 11:50PM ET
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© Reuters. FILE PHOTO: A worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang province, China September 2, 2019. China Daily via REUTERS/File Photo
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BEIJING (Reuters) -China's industrial profits extended this year's double-digit pace of declines into a sixth month as waning demand took a toll on companies' profit margins, bolstering the case for more supportive policy to help the economy.

The year-to-date 16.8% fall followed an 18.8% profit decline in January-May, and reinforced a frail economic recovery that brought weaker-than-expected 6.3% growth in the second quarter.

In June alone, industrial earnings shrank by 8.3% from a year earlier, according to data from the National Bureau of Statistics (NBS) on Thursday. Profits were down 12.6% in May.

Industrial profits "have narrowed their year-to-date declines month by month," NBS statistician Sun Xiao said in an accompanying statement, adding efforts will focus on the central government's directives to "implement macro policies in a scientific and precise manner" to expand demand.

The struggles confronting Chinese manufacturers were typified by Maanshan Iron and Steel, a major steelmaker, which forecast in mid-July that it would swing to a net loss of 2.24 billion yuan ($314.1 million) for the first half-year from a net profit of 1.43 billion yuan a year earlier.

State-owned enterprises saw earnings tumble 21% in the first half, foreign firms posted a 12.8% decline and private-sector companies recorded a 13.5% fall, a breakdown of the data showed.

Profits dived for 29 of 41 major industrial sectors during the period, with the ferrous metal smelting and rolling processing industry reporting the deepest slump at 97.6%.

"Looking ahead, there's a big chance of China's industrial profits logging positive growth in 2024, said Zheng Houcheng, chief macro economist at Yingda Securities Co, attributing the turnaround in part to expectations for ramped-up stimulus.

China's top leaders on Monday pledged to step up policy support for the economy and acknowledged a "tortuous" post-COVID recovery, but analysts saw few signs that aggressive stimulus was likely while concerns are mounting over debt risks.

While a senior central bank official earlier this month presaged the use of policy tools such as the reserve requirement ratio (RRR) to weather economic headwinds, the People's Bank of China kept its lending benchmarks unchanged last week.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.79 million) from their main operations.

($1 = 7.1320 Chinese yuan)

China industrial profits extend double-digit slide on weak demand

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