Employees work on the assembly line of an intelligent factory of SERES Automobile Co., Ltd in Chongqing, China on July 19, 2022.
Vcg | Visual China Group | Getty Images
China’s industrial profits growth in July slowed to its weakest pace this year, expanding 11.2% from a year earlier, as soft demand and a broader slowdown in the economy weighed on manufacturers.
For the first seven months of this year, profits climbed 17.6% from a year earlier, according to National Bureau of Statistics data released Thursday, loosing momentum following the 18.7% growth in the first half-year.
Industrial corporate profitability, however, has seen a notable turnaround, swinging from barely positive growth last year to double-digit gains this year. That recovery was largely helped by a global artificial intelligence boom that fueled demand for computing and electronics equipment manufacturing.
The integrated circuit industry, led by computing and storage chip manufacturers, saw profits expand 18.5% in the January-July period from a year earlier, contributing over 80% of the profit gains across the electronics sector, according to the official release.
A more than that fivefold increase in profits in the optical fiber manufacturing also boosted overall industrial gains in advanced manufacturing.
Raw materials manufacturers also saw profits expand 55.2% this year as of end-July from a year earlier. Petroleum processing industry turned a profit over the seven months as supply disruptions in the Middle East pushed up prices for lower-stream chemical products.
“Decelerating growth was primarily dragged down by falling investment in property and infrastructure, evidenced by worsening profits in steel and cement industries,” said Tianchen Xu, senior economist at Economist Intelligence Unit. Raw materials and AI supply chain remained resilient while consumer-facing industries struggled, Xu added.
Profit decline in furniture manufacturing steepened to 58.2% for the first seven months of the year, worse than the 52.7% recorded as of June.
China’s producer prices in June grew at their fastest pace in almost four years after rebounding in March from a multi-year slump that began in October 2022, according to LSEG data.
But the reflation boost appears to be petering out as much of the price recovery has been driven by surging global energy costs, while domestic demand lags. The factory-gate inflation slowed to three-month low of 3.5% in July.
Growth in the world’s second-largest economy also weakened in the second quarter to its slowest pace in more than three years.
An activity tracker compiled by the Bank of America research team indicated “broad-based loss of growth momentum” in the economy in July. Real exports growth slowed to 5.5% from 11.6% in June, and other indicators including retail sales, port throughput and electricity production weakened further.
Economists expect Chinese authorities to step up targeted support to stabilize corporate profitability, as consolidation accelerates in sectors grappling with sluggish demand, fierce competition and bruising price wars.
The deployment of existing fiscal resources will likely accelerate over the coming months, with potential additional easing steps if growth continues to slow, said Sophie Altermatt, economist at Julius Baer.
“This should provide some near-term stabilisation and put a floor under growth,” Altermatt noted, but a “strong cyclical rebound” remains unlikely as the property market slump, sluggish household confidence and subdued private investment constrain the recovery.
