Earnings at China’s industrial firms shrank for a second straight month last month, putting pressure on policymakers to support industries hurt by slowing prices and weak factory activity amid a protracted US-China trade dispute.
The data points to more troubles ahead for the country’s vast manufacturing sector already struggling with a decline in orders, job layoffs and factory closures as China’s economic growth slows to its weakest in nearly three decades.
Industrial profit fell 1.9 percent from a year earlier to 680.8 billion yuan (US$100.9 billion), weighed down by weak factory-gate prices and soft demand, the Chinese National Bureau of Statistics (NBS) said yesterday.
This is on top of a decline of 1.8 percent in November last year, which was the first contraction in profits in nearly three years.
Profits in the chemical, coal mining and non-ferrous-metal sectors all slowed significantly last month, the data showed.
For the full year, profits rose 10.3 percent to 6.64 trillion yuan, easing from robust pace of 21 percent in 2017. Profit at China’s state-owned industrial firms rose 12.6 percent from a year earlier, slowing from a 16.1 percent increase in the January-to-November period.
Upstream sectors such as oil extraction, coal and metal mining still commanded the lion’s share of profit gains last year, but analysts say that as industrial prices slow further or even shrink, profitability will come under pressure.
However, if large-scale tax cuts promised by the Chinese government could be rolled out in time, it would help put a floor on declining industrial profits in the second half, analysts said.
A survey from the state planner this month showed activity at 2,500 Chinese small or medium-sized enterprises continued to contract in the fourth quarter last year, despite a flurry of supportive government policies.
Moody’s said in a recent report that Beijing’s latest measures to support funding for private firms would be limited in effect, as credit would mostly flow to the fewer stronger privately owned enterprises.
Yesterday’s data showed that industrial firms’ liabilities rose 5.2 percent from a year earlier to 64.1 trillion yuan by the end of last year, compared with a 5.8 percent rise as of the end of November.
Although traders are replenishing inventory ahead of the Lunar New Year holiday next week, demand remains weak.
Aggravating the slowdown, the government has also vowed it will not relent on enforcing anti-pollution controls, refusing to accept economic pressure as an excuse.
That raises uncertainty on the overall boost to the industrial sector from support measures policymakers have pledged so far.
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