China’s industrial profit growth moderates amid patchy recovery

[BEIJING] Profits at China’s industrial firms grew at a solid, though slower, pace as resilient exports helped cushion sluggish domestic demand, highlighting the economy’s uneven recovery despite policymakers’ efforts to spur consumption.

Exports and industrial production have done much of the heavy lifting for the world’s second-largest economy.

Persistent weakness in consumption and the property sector, however, helped drag second-quarter growth to its slowest pace in more than three years, keeping calls alive for further policy support to address economic imbalances.

Industrial profit growth eased to 15.1 per cent in June from 21.1 per cent in May, while first-half profits rose 18.7 per cent from a year earlier, compared with an 18.8 per cent increase in the January-to-May period, data from the National Bureau of Statistics (NBS) showed on Monday.

“If this recovery can be sustained, it will be a good sign for the rest of the economy, as a return of profits growth could give companies room to resume wage growth,” said Lynn Song, ⁠chief economist of Greater China at ING.

The figures add to evidence of a two-speed recovery in the world’s second-largest economy, where manufacturers have benefited from robust overseas demand, while sectors tied to domestic spending continue to struggle.

“The external environment remains complex and international commodity prices uncertain,” NBS statistician Yu Weining said. “Industrial firms also face weak demand and cash flow pressures.”

Underlining strains in the domestic market, automobile manufacturing profits fell 19.5 per cent in the first half of the year, NBS data showed, as car sales declined for a ninth consecutive month in June.

Market reaction was muted with Chinese stocks and the yuan slightly firmer following the data.

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Attention is now turning to the Communist Party’s Politburo meeting at the end of July, a key policy-setting gathering where investors will look for signals on additional support measures.

Expectations for a broad-based stimulus package have been tempered, however, by resilient exports and Beijing’s preference for targeted easing.

Industrial profit figures cover firms with annual revenue of at least 20 million yuan (US$2.95 million) from their main operations. REUTERS