China's industrial profits post double-digit gains but recovery uneven

[December 27, 2023]  BEIJING (Reuters) -China's November industrial profits posted double-digit gains as overall manufacturing improved, although soft demand continued to constrain business growth expectations, emboldening calls for more macro policy support.

The 29.5% profit rise came on top of a 2.7% increase in October and alongside a pickup in industrial output in November, although other sectors of the world's second-largest economy still missed forecasts.

In the first 11 months of 2023, industrial earnings shrank 4.4% from a year earlier, further narrowing from a 7.8% decline in January to October, National Bureau of Statistics (NBS) data showed on Wednesday.

Behind the November profit rise was an accelerated uptick in industrial profits and returns on investments over the month, NBS statistician Yu Weining said in an accompanying statement.

With a slew of pro-growth measures in place to buttress a patchy post-COVID recovery, Asia's biggest economy is widely expected to achieve the government's growth target of around 5% for this year. Industrial profits extended gains for a fourth month.

The rise in both industrial output and earnings for November reflected the continued improvement in the manufacturing sector overall, said Zhou Maohua, an analyst at China Everbright Bank.

Macro policies to bail out industrial firms, a low statistical base last year and seasonality also contributed to the uptrend, he said.

Officials are confident about more favorable economic conditions in 2024. But the economic recovery remains shaky amid persistent property sector weakness, rising deflationary pressures and soft global demand, renewing calls for stimulus.

While the overall manufacturing sector has shown improvement, not all segments are on the mend yet.

Workers are seen near a crane lifting offshore wind energy equipment by China Construction Industrial and Energy Engineering Group Co at a port in Nanjing, Jiangsu province, China April 23, 2019./file photo

The unevenness across industrial sectors remains evident, with high-tech and equipment manufacturers seeing rapid profit growth while property-related sectors are still squeezed by shrinking profits, Zhou said.

The analyst said he hoped to see an "optimized" mix of macro policies to prop up growth.

Citing intensified competition and weaker-than-expected downstream demand, Chinese chemicals producer Do-Fluoride New Materials Co expected 2023 net profit to fall by between 68.17% to 71.25%.

There is now little chance industrial profits return to growth for the whole of 2023 with China's producers' prices expected to remain under pressure for the foreseeable future, said Zheng Houcheng, chief macroeconomist at Yingda Securities.

State-owned firms saw their earnings down 6.2% in the first 11 months, foreign firms reported an 8.7% fall while private-sector companies posted a 1.6% gain, according to a breakdown of the data.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.80 million) from their main operations.

($1 = 7.1339 Chinese yuan)

(Reporting by Qiaoyi Li and Ryan Woo. Editing by Sam Holmes)

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