China industrial profits jump in November though deflation woes linger

SHANGHAI – China’s industrial profits soared in November, helped by favourable year-ago comparisons and a raft of stimulus measures aimed at reinvigorating an economy that has struggled with deflationary concerns.

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 Dec 27. Companies also recorded large investment returns in November, further boosting their bottom line, NBS said.

The government stopped publishing the data in the second half of 2022 as Covid-19 controls brought parts of the economy to a standstill, only resuming publication of the numbers this year.

Despite initial expectations that lifting pandemic curbs would see the economy roar back to life, profits for China’s big industrial companies from January-to-November were still down 4.4 per cent from a year ago, although that’s eased from a 7.8 per cent decline through the first 10 months.

“As macro policies take effect and domestic demand gradually recovers, the rebound in industrial production picked up and industrial firms’ profit continued to improve,” NBS analyst Yu Weining said in a separate statement.

Companies likely benefited from the gains in some onshore stocks and the yuan in November, according to Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. He added that their investment returns and the base effect comparison contributed “roughly half-half” to the overall profit growth.

Investors appeared unimpressed by the data. The onshore CSI 300 Index lost as much as 0.5 per cent following the release, before rising 0.4 per cent as of the midday break. In comparison, the benchmark MSCI Asia Pacific Index rose about 1 per cent.

The profit data adds to mixed signals on the economy. While industrial output exceeded estimates in November, consumer prices posted the steepest drop in three years while declines in factory-gate costs accelerated. New orders received by manufacturers shrank to the lowest since June and factories scaled back input purchases for a second straight month, official data showed.

Signs of deflation have become more prevalent across China as prices keep declining and demand remains subdued, casting doubt on whether the profit surge can be sustained. Authorities are under pressure to step up stimulus or risk the economy falling into a downward spiral if consumers and companies hold off purchases or investments in anticipation of prices dropping further.

Beijing is expected to set an ambitious growth goal of around 5 per cent for 2024, which is the same as the target this year but would be harder to achieve because it will be compared against a higher base.

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 hasn’t ended, and companies, particularly downstream consumer goods producers, may still be struggling with overcapacity, according to a note by Changjiang Securities over the weekend.

The November profits reflect an improvement in upstream industries due to price increases and restocking in some sectors, said Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group. However, the “big picture is that destocking cycle has yet reached the end. We need a bottom of inventories to confirm a turnaround of the growth outlook,” he added. BLOOMBERG

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