China’s industrial profits continue to decline as weak demand and a faltering post-pandemic recovery weigh on the country’s economy. According to data from the National Bureau of Statistics, profits at China’s industrial firms fell by 6.7% in July compared to the previous year, marking the seventh consecutive month of decline. Earnings for the first seven months of the year were down 15.5% year-on-year, following a 16.8% decline in the first half of the year.
The decrease in profits can be attributed to a variety of factors, including low commodity prices and eased pressure on raw material costs. NBS statistician Sun Xiao noted that the unit cost of industrial enterprises has improved overall, with July posting the first year-on-year decrease in unit costs since the beginning of the year. However, major Chinese manufacturers have still felt the impact, with engineering firm China Aluminum International reporting a net loss of 830.6 million yuan ($114.2 million) for the first half of the year compared to a net profit of 123.6 million yuan the previous year.
The decline in profits has prompted major banks to lower their growth forecasts for the year. A worsening property slump, weak consumer spending, and tumbling credit growth have all contributed to the challenges facing China’s economy. As a result, the authorities have taken measures to support recovery by slashing interest rates and promising further assistance.
The data also revealed that state-owned enterprises saw a 20.3% decline in earnings for the first seven months of the year, while foreign firms and private-sector companies recorded declines of 12.4% and 10.7% respectively. Within the industrial sector, profits plummeted for 28 out of 41 major sectors. The ferrous metal smelting and rolling processing industry saw the steepest decline at 90.5%.
Despite the challenging economic conditions, President Xi Jinping remains optimistic about China’s long-term growth prospects, stating that the fundamentals for growth are unchanged.
Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.77 million) from their main operations.
The central bank has pledged to keep its policies “precise and forceful” to support recovery. However, it remains to be seen if more significant measures will be implemented to shore up growth.
Reporting by Ethan Wang, Judy Hua and Joe Cash; Editing by William Mallard