China’s industrial profits suffer first drop in 3 yrs, piles pressure on economy

BEIJING: Earnings at China’s industrial firms in November dropped for the first time in nearly three years, as slackening external and domestic demand left businesses facing more strain in 2019 in a sign of rising risks to the world’s second-largest economy.

The gloomy data points to a further loss of economic momentum as a trade dispute with the United States piles pressure on China’s vast manufacturing sector and as firms, bracing for a tough year ahead, shelve their investment plans, executives say.

Industrial profits fell 1.8 per cent in November from a year earlier to 594.8 billion yuan (US$86.33 billion), the National Bureau of Statistics (NBS) said on its website on Thursday. It marked the first decline since December 2015.

The fall in profits largely reflected slowing growth in sales and producer prices as well as rising costs, He Ping of the statistics bureau said in a statement accompanying the data.

Economists expect earnings to continue to worsen next year, weighed down by smaller gains in industrial prices due to cooling demand, with some even warning of the risk of deflation.

“Soft economic indicators such as producer prices, industrial output and orders all point to further pressure on corporate profitability,” said Nie Wen, a Shanghai- based analyst at Hwabao Trust, adding that firms’ revenues have been hit by shrinking demand.

“Industrial profits next year might very well post a 5-10 per cent decline on average.”

Soft economic indicators such as producer prices, industrial output and orders all point to further pressure on corporate profitability. Nie Wen, analyst at Hwabao Trust

In November, China’s factory price growth slowed to the weakest pace in two years as domestic demand lost further momentum.

“Survival is paramount for us (next year) – we will be more cautious with our investments,” Jiang Ming, chairman of Henanbased Tianming Group that has businesses in healthcare, construction and finance, told Reuters.

“We also need to maintain better cashflows and save our ammunition to prepare for the tight, tough and difficult days ahead.”

China’s economy expanded at the slowest pace last quarter since the global financial crisis, hit by a years-long deleveraging campaign, cooling property market and a trade dispute with the United States, and is expected to cool further next year.

The growing pressure has prompted the government to roll out a range of measures to juice up demand.

In a key annual economic conference held this month the country’s top leaders said they will ratchet up support for the economy in 2019 by cutting taxes and keeping liquidity ample, while promising to push forward trade negotiations with the US. — Reuters