China’s industrial profits plunge sharply as demand weakens
In November, profits at China’s industrial firms experienced their steepest decline in over a year, as sluggish domestic demand countered the strength in exports. This development serves as another indication of a faltering economic recovery, reinforcing the need for further policy stimulus. According to data released on Saturday, profits experienced a decline of 13.1 per cent year-on-year in November, a notable acceleration from the 5.5 per cent drop recorded in October. The notable decline occurred despite stronger-than-anticipated goods exports and in the context of ongoing factory-gate deflation, continuing to exert pressure on policymakers to take further action to tackle persistently weak household consumption. “The profit numbers are consistent with a broader cooling in economic activity in the fourth quarter, mainly due to the drag from soft domestic demand,” said Xu Tianchen.
Xu expressed a sense of cautious optimism regarding the prospects for industrial profits. Profitability will enhance under “anti-involution” as firms reduce investment over time, he stated, noting that companies might also “earn more profits overseas,” though “at the cost of their global peers.” In the first 11 months of the year, industrial profits experienced a modest increase of 0.1 per cent compared to the previous year, a deceleration from the 1.9 per cent growth observed in January and October. This slowdown was influenced, in part, by a significant 47.3 per cent decline in profits within the coal mining and washing sector. As the year draws to a close, momentum in the approximately $19 trillion economy has slowed, yet officials have not introduced new policy support.
Observers of China note that Beijing finds some reassurance in indicators that imply the official 2025 growth target of approximately 5 percent remains attainable, while a truce in US-China trade has contributed to a reduction in tensions. Market expectations, however, focus on the necessity for additional policy support in the coming year to enhance domestic demand and promote overall economic growth. In light of a volatile and uncertain global landscape, and with ongoing structural adjustments as industries transition from traditional to new growth drivers, the recovery in profitability for industrial firms requires a more solid foundation, Yu Weining stated. According to estimates, China’s economy is projected to grow by only 2.5 per cent to 3 per cent in 2025, which is approximately half the rate suggested by official statistics. This slowdown is attributed to a significant decline in fixed-asset investment during the latter half of the year.
By sector, the automotive industry reported a 7.5 per cent rise in profits, accelerating by 3.1 percentage points from the January to October period. High-tech manufacturing emerged as a notable highlight, with profits increasing by 10.0 percent year-on-year, reflecting an enhancement of 2.0 percentage points from January to October. During an agenda-setting meeting earlier this month, policymakers committed to maintain a “proactive” fiscal policy next year to support both consumption and investment. The government has consistently pledged to enhance employment, increase household consumption, rejuvenate prices, and stabilize the property market, which has been enduring a prolonged downturn. Industrial profit figures encompass companies that generate a minimum of 20 million yuan ($2.85 million) in annual revenue from their primary operations.
