By Qiaoyi Li, Joe Cash and Liangping Gao
BEIJING (Reuters) -China’s October industrial profits narrowed their earlier declines, helped by a low base the previous year, official data showed on Wednesday, but headwinds on earnings remain stiff with the economy still battling weak demand and deflation pressures.
China’s sprawling industrial sector, which includes mining, processing and manufacturing companies, has struggled to stay profitable in the face of feeble domestic demand hit by a years-long property crisis, unemployment and rising trade tensions.
While policymakers vow to meet the government’s gross domestic product growth target of around 5% this year, the $19 trillion economy remains on the back foot.
Industrial profits in October fell 10% from a year earlier, better than a 27.1% slump in September, although earnings slid 4.3% in the first 10 months versus a 3.5% decline in January-September, National Bureau of Statistics (NBS) data showed.
Profits in most industries improved compared with the previous month, with new drivers such as equipment and high-tech manufacturing playing a strong supporting role, NBS statistician Yu Weining said in an accompanying statement.
But some private-sector economists attributed the October improvement partly to the effect of a low base from a year earlier. Industrial profits in October 2023 grew 2.7%, easing from double-digit gains in August and September last year.
“For the October monthly data alone, the year-on-year level has a lot of noise due to base effects, and the difference can largely be attributed to this,” said Lynn Song, chief economist for Greater China at ING.
“Overall, profits are still under some pressure this year as the 4.3% year-on-year decline year-to-date shows, though there is hope that as more policy easing starts to come through, the operating environment will become more favourable next year.”
DEFLATIONARY PRESSURES
Separate economic indicators earlier this month pointed to broadly soft demand, with consumer prices at their weakest in four months while industrial output continued to trend downward and new home prices fell at their fastest pace in nine years.
Data earlier this month showed producer prices fell 2.9% on year in October, deeper than the 2.8% drop in the previous month and worse than an expected 2.5% decline. It marked the biggest drop in 11 months.
Factory-gate deflation deepened in the petroleum and natural gas extraction, oil and coal processing, chemical products manufacturing and auto manufacturing sectors.
