By Peter Bergman (MoneyAmped.com)
Profits of industrial companies in China experienced a consecutive monthly increase in September, indicating that the manufacturing sector is recovering with the assistance of policy support.
According to data released by the National Bureau of Statistics on Friday, there has been an 11.9% year-on-year increase in industrial profits. Following a notable increase of 17.2% in August, marking the initial growth in over twelve months, the latest development has emerged.
During the initial three quarters of 2023, there was a decrease of 9% in profits compared to the corresponding period in the previous year. This decline indicates a slight improvement compared to the 11.7% drop observed in the first eight months of the year.
Industrial Profits in China Have Increased for the Second Month in a Row
Based on a statement by NBS statistician Yu Weining, there has been a steady expansion in industrial production, while market demand has shown signs of improvement. An upturn in the prices of industrial products has resulted in a positive development in the revenue of industrial companies, as stated by Yu.
Things Are Starting to Get Better
The ongoing enhancement in industrial profits indicates a potential revival in demand, coinciding with the government’s implementation of measures to support economic growth. Additionally, companies are nearing the conclusion of a destocking phase.
The official purchasing managers’ index has revealed that factory-gate prices experienced a decrease in September, as indicated by the producer price index. The decline narrowed to 2.5%. Additionally, manufacturing activities have shown improvement, marking the first expansion in six months.
According to Zhaopeng Xing, a senior China strategist at Australia & New Zealand Banking Group, the profit increase aligns with the recent upturn in PPI and PMI, indicating that the industry is reaching its lowest point.
In an unusual move, Chinese shares experienced a notable increase on Friday, as the Hong Kong China Enterprises Index surged up to 1.5%. The yield on the nation’s 10-year bonds remained relatively stable.
China’s economy experienced a notable upswing during the third quarter, driven by increased consumer expenditure across various sectors, including restaurants and the automotive industry. The country is on track to meet its annual growth target of approximately 5% due to economic data for the third quarter that surpassed expectations. In September, industrial production experienced a growth of 4.5%, exceeding economists’ expectations.
In recent months, there has been a notable rise in industrial profits; however, these gains have not been sufficient to fully compensate for the financial losses experienced by companies earlier this year. The contraction of industrial profits during the initial nine months of the year suggests that companies experienced limited gains despite the overall economic growth of 5.2% witnessed in the first three quarters.
The recovery has also been uneven across various industry segments. During the initial three quarters, multiple sectors, such as chemicals, fuel processing, coal mining, and electronics manufacturing, witnessed significant drops in profits, with each experiencing a decline in double digits. In recent developments, the sectors of electricity production and equipment manufacturing have seen a notable surge in their profitability.
Many Problems Have Yet to Be Solved
Uncertainty looms over the profitability of industrial firms in the foreseeable future as the housing market continues to exert significant pressure on the overall economic prospects. The contraction of home prices and property investment persists, further exacerbating the prevailing challenges.
In the words of Bruce Pang, the chief economist at Jones Lang LaSalle Inc., potential obstacles to achieving sustainable recovery encompass the possibility of winter-related disturbances to industrial production and headwinds stemming from external demand.
