China’s industrial profits decline again on Covid-19, property woes

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PROFITS at industrial firms in China shrank in the first nine months of the year, as the ongoing Covid-19 disruptions and a property slump continued to weigh on companies' bottom lines. 

Industrial profits in the January-to-September period fell 2.3 per cent compared to the same time frame in 2021, fresh data from the National Bureau of Statistics (NBS) showed on Thursday (Oct 27). That compared with a decline of 2.1 per cent in the first eight months.

The NBS has not released single-month data since June.

Firms continue to be affected by high costs and some businesses face operational challenges, said Zhu Hong, a senior statistician at the NBS, in a statement accompanying the data, adding that profits are still impacted by an "increasingly complicated external environment."

Profits at foreign companies remained weak, though the declines narrowed from the January-to-August period. Those profits were down 9.3 per cent in the first nine months, compared to a 12 per cent drop in the first eight months. 

Private firms saw their profits sink 8.1 per cent year-to-date, also slightly narrower. Profits at state-owned enterprises were up 3.8 per cent, down from a 5.4 per cent increase in the first eight months of 2022.

Auto manufacturing profits for the month of September were up more than 47 per cent due to recovered supply chains and an increase in demand, according to the NBS. The monthly jump narrowed the year-to-date figure for that sector to a decline of 1.9 per cent from a 7.3 per cent plunge in the first eight months.

Third-quarter gross domestic product and other data released earlier this week pointed to a stronger-than-expected rebound underpinned by increasing investment in infrastructure and an acceleration in manufacturing output growth.

Even so, economic risks remain as the country sticks to its zero-Covid policy and as the housing market continues to be pressured. Retail sales, property and employment all showed signs of strain last month. 

Trade data last month was also better than feared, but momentum is slowing and exports to many of China's largest trade markets contracted - evidence of a slowdown in global demand.

Commodity prices have also fallen, which in recent months has dragged on producer price inflation - a measure strongly correlated with industrial profits. PPI slowed to 0.9 per cent in September, driven by a slump in the prices of mining, raw materials and manufacturing goods. 

Slowing inflation means some businesses may have more trouble passing on the cost of goods, which can cut into their margins.

Slack consumption and a lack of effective demand will continue, economists say, as long as the zero-Covid policy remains in place - the ultimate hurdle in a meaningful and lasting recovery. 

However, President Xi Jinping signalled no change in direction for either that strategy or housing market policies, the other main economic risk factor, during the 20th Communist Party Congress earlier this month. Xi extended his tenure as leader for an unprecedented third term during the twice-a-decade event.

Meanwhile, China on Thursday reported a third straight day of more than 1,000 new Covid-19 cases nationwide, a modest tally compared with the tens of thousands per day that sent Shanghai into a full-blown lockdown earlier this year but enough to trigger more restrictions across the country.

Chinese cities from Wuhan in central China to Xining in the northwest are doubling down on Covid-19 curbs, sealing up buildings, locking down districts and throwing millions into distress in a scramble to halt widening outbreaks.

Guangzhou, China's fourth-biggest city by economic output and the provincial capital of Guangdong, on Thursday sealed up more streets and neighbourhoods and kept people in their homes as new areas were deemed high-risk in a pandemic resurgence that persisted into its fourth week.

Other large cities including Zhengzhou, Datong and Xi'an have implemented new curbs this week to rein in local outbreaks. BLOOMBERG, REUTERS



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