Industrial profits fall sharply, another bad sign for China's economy

Profits at China's industrial firms fell 6.7% in July from a year earlier, extending this year's decline to a seventh straight month, as weak demand weighed on companies as the recovery from the Covid-19 pandemic stalled in the world's second-largest economy.

China's economic recovery prospects face a bleak future as a series of negative indicators emerge. (Source: Reuters)

China's National Bureau of Statistics (NBS) said industrial firms' earnings fell 15.5 percent year-on-year in the first seven months of this year, after falling 16.8 percent in the first half of the year.

According to NBS expert Sun Xiao, commodity prices are low, the pressure on raw material costs in industries has somewhat eased, and the costs of industrial production enterprises have generally improved.

Major Chinese manufacturers reported losses in the first half of the year, with China Aluminum International reporting a net loss of 830.6 million yuan ($114.2 million), compared with a net profit of 123.6 million yuan in the same period last year.

Major banks have slashed their growth forecasts for this year to below the government’s target of around 5% as the recovery falters amid worsening asset losses, weak consumer spending and slowing credit growth. Banks have cut interest rates and authorities have pledged further support.

The data also showed that state-owned enterprises’ earnings fell 20.3 percent in the first seven months of this year, foreign companies’ fell 12.4 percent and private sector firms’ saw a 10.7 percent drop. Profits fell sharply in 28 of 41 key industries during the period, with the metallurgical and non-ferrous metal processing industry reporting the steepest decline of 90.5 percent.

The People's Bank of China (PBoC, the central bank) said that in August 2023, it will maintain "correct and strong" policies to support recovery. Speaking at the BRICS Summit in South Africa on August 22, President Xi Jinping said that the Chinese economy is resilient and the fundamentals for long-term growth remain unchanged.

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