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, according to National Bureau of Statistics data on Thursday.
For the first seven months of this year, profits climbed 17.6% from a year earlier, losing momentum following the 18.7% rate in the first half-year. The survey covers firms with annual revenues of over 20 million yuan ($2.9 million) from their core operations.
Industrial corporate profitability has seen a notable turnaround, swinging from years of declines since 2021 and 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.
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.
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.
