China’s industrial firms saw their profits drop the most since October last year, illustrating weakness in an economy strained by higher US tariffs and lingering deflationary pressure.
Industrial profits fell 9.1 percent last month from a year earlier, data released Friday by the Chinese National Bureau of Statistics (NBS). The reading for last month reversed a modest gain earlier this year and took decline in the first five months to 1.1 percent.
Highlighting the headwinds from persisting deflationary risks, profits of automakers plunged 11.9 percent year-on-year from January to last month, the worst drop since the first quarter of 2023. Car companies have engaged in a brutal price war, fueled by an intense competition for market share as well as rising trade barriers.
Photo: AP
The deterioration bodes ill for business confidence and could make companies more reluctant to invest and hire. It also highlights the need for more government stimulus by Beijing to ensure meeting its annual growth target of about 5 percent — even though some economists turned less bearish on the outlook after a truce in the trade war with the US and a recovery in consumption lately.
Earnings declined this year mainly due to “insufficient effective demand, falling prices of industrial products and short-term volatilities,” NBS analyst Yu Weining (于衛寧) said in a statement accompanying the release.
Profits weakened even as China’s industrial companies benefited from the government’s program to subsidize upgrades of equipment and consumer goods by businesses and households.
Thanks to the program, earnings of companies making equipment for manufacturing smart consumer devices more than doubled in the first five months of the year from the same period a year ago.
Manufacturers of general equipment and household kitchen appliances also saw double-digit profit growth.
Last month’s contraction in industrial enterprises’ earnings came despite a 5.8 percent expansion in industrial output, NBS data showed.
The overall industrial profits of 2.72 trillion yuan (US$379 billion) in January to May was more than one-fifth less than during the same period in 2021 and 2022.
Mining continued to lead the drops in profits among industrial firms, with the fall deepening to 29 percent in the first five months from a year earlier, the NBS data showed.
Miners and processors of coal and ferrous metals saw even deeper contractions of at least 45 percent. State-owned enterprises, which dominate the mining industry, saw widening profit plunges as a result.
Despite the drag from carmakers, manufacturers as a whole managed to eke out a 5.4 percent growth in profits in the period, while utilities saw a 3.7 percent gain.
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