China’s deepening slide in industrial profits adds to economic gloom

Profits at China’s industrial firms tumbled 18.8 per cent year-on-year in the first five months of 2023, data showed on Wednesday, as companies were hit hard by a squeeze in margins from softening demand amid a stumbling post-COVID economic recovery. The slide extended a 20.6 per cent profit fall in the January-April period, according to data from the National Bureau of Statistics (NBS), and reinforces market expectations of further policy support over coming months. In May alone, industrial earnings contracted by 12.6 per cent from a year earlier, according to the NBS, which only occasionally publishes monthly figures. Profits were down 18.2 per cent in April.

The continued weakness in profits came on the back of a slowing economy that was losing steam in May on many fronts including retail sales, exports and property investment as youth jobless rate scaled a fresh high of 20.8 per cent.

The patchy recovery has prompted S&P Global, Goldman Sachs and other global agencies to ratchet down their China growth forecasts for this year.

As part of efforts to shore up the faltering recovery, China cut its key lending benchmarks for the first time in 10 months. It also unveiled a 520 billion yuan package of a purchase tax break on new-energy vehicles through the end of 2027.

In his keynote speech to the Summer Davos Forum in Tianjin on Tuesday, Premier Li Qiang said that China will roll out more effective policy measures to expand domestic demand.

Li said China’s second-quarter economic growth will be higher than that in the first quarter, adding that it’s expected to achieve the 2023 growth target of around 5 per cent.

Still, the government has taken a cautious approach to reviving the economy amid lingering concerns over local government debt and other longer-term risks.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.77 million) from their main operations’ deepening slide in industrial profits adds to economic gloom