Profits at large Chinese industrial companies declined last year, reflecting widespread corporate pain stemming from falling prices and weak demand both at home and overseas.
Industrial profits at large-scale Chinese companies decreased 2.3 percent last year from 2022, data published by China’s National Bureau of Statistics (NBS) on Saturday show.
That annual number contrasted with an end-of-year surge, after last month’s profits soared 16.8 percent from the same month in 2022. That was a slower pace than November’s 29.5 percent increase. Both months reflected a rebound in output from a year earlier, when nationwide COVID-19 outbreaks shuttered factories in many major cities.
Photo: AFP
“Overall, industrial profits maintained the recovery momentum in 2023,” the NBS said in a statement, noting the annual decline narrowed from 2022 as monthly profits resumed growth since August last year.
China would seek to “expand domestic demand, lift market confidence, invigorate various industry participants,” and try to sustain and boost the recovery, it said.
While China hit its conservative target of about 5 percent growth last year, an expected post-pandemic boom failed to materialize as a property market slump dragged on the world’s second-largest economy. That has spurred Beijing to ramp up measures to aid growth without flooding the system with so-called “big stimulus.”
Industrial profits have been improving since last summer, a sign many companies are approaching the end of a destocking cycle. In another positive sign, industrial output expanded 6.8 percent last month, the fastest pace since 2021. A year-on-year decline in producer prices also slowed from November last year, reducing the hit to profitability.
Total industrial profits are determined by changes in output, prices and profit margins. Industrial producers increased their margins over the course of last year, official data showed, as they cut costs per unit of revenue.
Signs of deflation have become more prevalent across China, casting doubt on whether the surge in industrial profits can be sustained.
Authorities still face pressure to keep the stimulus coming. Economists are expecting further cuts to the reserve requirement ratio — which determines the amount of cash banks must keep in reserve — over the rest of the year, in addition to modest policy-rate reductions.
The People’s Bank of China on Wednesday last week announced that it would cut the reserve requirement ratio by 0.5 percentage points on Monday next week to provide 1 trillion yuan (US$140.91 billion) in long-term liquidity to the market. The central bank has signaled more targeted stimulus to guide money toward specific sectors of the economy.
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