China’s industrial profits rise though deflation concerns linger
THE growth in China’s industrial profits gathered pace in November, helped by favourable year-ago comparisons and as the effects of the government’s support measures kicked in.
Profits jumped 29.5 per cent from a year earlier, accelerating sharply from the 2.7 per cent increase in October, according to data published by the National Bureau of Statistics (NBS) on Wednesday (Dec 27).
The figures are boosted by a low base of comparison last year when economic activity was hampered by strict pandemic controls. The statistics bureau stopped publishing the dataset in the second half of 2022 and resumed early this year, with the numbers showing negative growth to July. In August, growth turned sharply positive before easing in recent months.
Still, profits for the first 11 months were down 4.4 per cent from the same period a year earlier, easing from a 7.8 per cent decline in the first 10 months.
Yu Weining, an NBS analyst, attributed November’s rise to government policies. “As macro policies take effect and domestic demand gradually recovers, the rebound in industrial production picked up and industrial firms’ profit continued to improve,” Yu said.
Meanwhile, signs of deflation have become more prevalent across China as prices keep declining and demand remains lacklustre. This increases pressure on authorities to step up stimulus or risk the economy falling into a downward spiral as consumers and companies hold off purchases or investments in anticipation of prices dropping further.
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Beijing is expected to set an ambitious growth goal for 2024, which would be the same as the target this year but is harder to achieve because 2023 had the benefit of a low base of comparison due to coronavirus restrictions a year ago.
China’s consumer prices posted the steepest drop in three years last month while declines in factory-gate costs also accelerated. New orders received by manufacturers contracted to the lowest since June and factories scaled back input purchases for a second straight month, official data showed.
External demand for Chinese goods has also been weak, with a gauge of export prices hitting the lowest since 2009 in October. The declines show the industrial sector’s destocking cycle has not ended, and companies, particularly downstream consumer goods producers, may still be struggling with overcapacity, according to a note by Changjiang Securities over the weekend.
China’s top leaders have indicated they will maintain a pro-growth policy stance next year. The country’s biggest state-owned banks slashed deposit rates last week for the third time this year, paving the way for further lending rate cuts. The move followed the central bank’s record injection of cash into banks via its one-year policy loans earlier this month to encourage lending. BLOOMBERG
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