China’s industrial profits drop further as Covid-19 woes take toll on economy

CHINA’S industrial firms saw overall profits decline further in the January-October period as Covid-19 outbreaks flared up and cities imposed new virus curbs such as targeted lockdowns, which have dampened economic activity.

Industrial profits fell 3 per cent in the first 10 months of 2022 from a year earlier. That compares with a 2.3 per cent drop for January-September, National Bureau of Statistics data released on Sunday (Nov 27) showed. The bureau has not reported standalone monthly figures since July.

Profits declined for 22 of China’s 41 major industrial sectors.

“Recent outbreaks of domestic epidemics have frequently occurred, the risk of global economic recession has intensified, and industrial enterprises are facing greater pressure,” the bureau said in a statement.

The downbeat data for the world’s second-largest economy also reflects a debt payment crisis within the country’s property sector and a sharp slowdown in consumer spending.

Since October, outbreaks have only grown and mounting anger over China’s harsh zero-Covid policies that aim to stamp out the virus sparked rare protests by citizens over the weekend.

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China reported its fourth straight daily record of 39,791 new Covid-19 infections on Nov 26, of which 3,709 were symptomatic and 36,082 were asymptomatic, the National Health Commission said on Sunday.

That is compared with 35,183 new cases a day earlier – 3,474 symptomatic and 31,709 asymptomatic infections, which China counts separately.

Profits for manufacturers were down 13.4 per cent in the first 10 months, slightly lower than the 13.2 per cent fall in January-September.

“Industrial profits continued to come under pressure as prices were weighed down by overall weak domestic demand and input costs remained high in some manufacturing sectors,” said China Everbright Bank analyst Zhou Maohua.

Sectors showing the steepest declines included the petroleum, coal and fuel processing industry which saw profits tumble 70.9 per cent. That compares with a 67.7 per cent drop for the first nine months.

Some sectors that have seen strong profit growth saw the pace of growth slow significantly.

In the mining sector, profits grew 60.4 per cent in January-October compared with a 76.0 per cent gain for the first nine months.

Some analysts now believe China’s GDP could contract in the current quarter from the third quarter, and have cut their 2023 forecasts, predicting the path to reopening the economy will be slow and bumpy.

Analysts from Nomura expect fourth-quarter GDP to shrink 0.3 per cent from the preceding three months. They have also cut their fourth-quarter growth forecast on a year-on-year basis to 2.4 per cent from 2.8 per cent.

Likewise, analysts from Oxford Economics cut their 2022 and 2023 GDP forecasts as they believe a broadening of lockdown measures is expected.

To prop up the faltering economy, authorities have rolled out a flurry of measures recently, including moves to ease some Covid-19 curbs and provide financial support to the property market, which have underpinned market sentiment.

On Nov 25, China said it would cut the amount of cash that banks must hold as reserves for the second time this year, releasing about 500 billion yuan (S$95.9 billion) in long-term liquidity.

In October, China’s industrial output surged 5 per cent from a year earlier, missing expectations for a 5.2 per cent gain in a Reuters poll and slowing from the 6.3 per cent growth seen in September.

Industrial profit data covers large firms with annual revenues above 20 million yuan from their main operations. REUTERS