China's Industrial Profits Decline Slows in November

China's industrial profits decline at slower pace in November
China's industrial profits extended their decline to a fourth straight month, dropping 7.3% in November from a year earlier, signaling that Beijing's stimulus measures have yet to meaningfully stem the slide in corporate earnings. Profits slumped 10% year on year in October following a 27.1% plunge in September — their steepest drop since March 2020 according to Wind information.

Industrial profits are a key indicator of the financial well-being of factories, utilities and mines in China. The earnings show how business balance sheets stack up in the aftermath of Beijing's steps aimed at stimulating the economy. Despite a slew of stimulus measures introduced since late September, recent economic data from China indicates that the world's second-largest economy continues to grapple with disinflation, driven by weak consumer demand and a prolonged downturn in the property market.

China's consumer inflation fell to a five-month low in November, while the country's exports and import data missed expectations. China's most recent retail sales data also disappointed, missing forecasts. However, some parts of China's economy have shown signs of a recovery, with manufacturing activity expanding for two months in a row and hitting a five-month high in November.

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Earlier this month, China's top officials committed at a key economic agenda-setting meeting to dial up monetary easing efforts, including lowering interest rates to support the ailing economy. The World Bank on Thursday raised its forecast for China's economic growth in 2024 and 2025, reflecting the recent policy adjustments. It now expects China's GDP to grow 4.9% in 2024 compared with its previous projection of 4.8%, while in 2025, China's GDP is expected to expand by 4.5%, higher than the organization's prior forecast of 4.1%. However, the World Bank cautioned that China's embattled property sector, alongside subdued household and business confidence, will remain headwinds to its growth.

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Profits of China's major industrial enterprises fell 2.3 percent in 2023, continuing a month-on-month narrowing that began in March, an ongoing recovery that underscores the resilience of the Chinese economy, experts said.
In 2023, the profits of industrial companies whose annual main business revenue exceeded 20 million yuan ($2.82 million) stood at 7.69 trillion yuan, a year-on-year decline of 2.3 percent, narrowing by 2.1 percentage points from the first 11 months of last year, the National Bureau of Statistics (NBS) released on Saturday. State-owned enterprises achieved total profits of 2.26 trillion yuan in 2023, down 3.4 percent year-on-year, while private enterprises had total profits of 2.34 trillion yuan, up 2 percent, NBS data showed.

With domestic demand improving gradually and industrial production picking up steadily, the profitability of large-scale industrial enterprises has continued to recover, further consolidating the foundation for high-quality development of the industrial economy, NBS statistician Yu Weining said in a statement on Saturday. While the total profits of major industrial enterprises declined amid the multiple challenges at home and abroad, the narrowing trend has sent a positive signal that the Chinese economy is gradually overcoming various difficulties and stabilizing on an improving trend, Zhu Keli, executive director of China Institute of New Economy, told the Global Times on Saturday.

In terms of the moving trend of industrial profits throughout the year 2023, major industrial enterprises' profits saw a sharp narrowing of decline, given the year-on-year decrease of 22.9 percent in January-February, Yu said. By quarter, the profit of industrial enterprises in the first quarter of 2023 fell by 21.4 percent year-on-year, with a 12.7 percent fall in the second quarter, before recording a 7.7 percent gain in the third quarter and a 16.2 percent increase in the fourth. In December, profits of industrial enterprises rose by 16.8 percent year-on-year, growing for a fifth consecutive month, according to the NBS.

Overall, more than 60 percent of industries recorded profit gains in 2023. With the deepening industrial chain optimization and upgrading, the efficiency of the equipment manufacturing industry continues to improve, further strengthening its supporting role for the profit recovery of industrial enterprises, Yu said. Specifically, due to the rapid rise in shipbuilding orders and the record high automobile production, the transport equipment industry saw profits jump by 22 percent year-on-year, while profits of the automobile industry increased 5.9 percent.

Against 1. How did the recent stimulus measures implemented by the Chinese government impact the industrial profits decline in November?
The recent stimulus measures implemented by the Chinese government did not have a significant impact on the decline in industrial profits in November. In fact, industrial profits extended their decline to a fourth straight month, dropping 7.3% in November from a year earlier. This indicates that the stimulus measures have yet to meaningfully stem the slide in corporate earnings. The profits slumped 10% year on year in October following a 27.1% plunge in September, which was the steepest drop since March 2020. Despite the introduction of a slew of stimulus measures since late September, recent economic data from China suggests that the world's second-largest economy continues to grapple with disinflation, driven by weak consumer demand and a prolonged downturn in the property market.

2. What role did the recovery in manufacturing activity play in slowing the pace of the industrial profits decline?
The recovery in manufacturing activity played a significant role in slowing the pace of the industrial profits decline in China. According to the National Bureau of Statistics (NBS) data, the profits of major industrial firms with annual main business revenue of at least 20 million yuan (about 2.8 million U.S. dollars) increased by 16.8 percent year on year in December 2023, marking the fifth consecutive month of profit growth. This trend contributed to the narrowing of the year-on-year decline in industrial profits to 2.3 percent in 2023, compared to a 4.7 percent decline in the January-November period of 2024.

The equipment manufacturing sector, in particular, saw its profits increase by 4.1 percent in 2023, which was 2.4 percentage points higher than the growth rate registered in the previous year. This improvement in the equipment manufacturing sector, along with the overall recovery in manufacturing activity, helped to stabilize the industrial profits and slow down the pace of their decline.

Moreover, the manufacturing Purchasing Managers' Index (PMI) rose to 50.3 percent in November 2024, up by 0.2 percentage points from October, signaling modest expansion. The business activity expectations index climbed to 54.7 percent, reflecting stronger confidence in future production and operations. This improvement in manufacturing sentiment further supported the recovery in industrial profits and contributed to the slowing pace of their decline.

In summary, the recovery in manufacturing activity, particularly in the equipment manufacturing sector, played a crucial role in slowing the pace of the industrial profits decline in China. The improvement in manufacturing sentiment and the overall expansion in manufacturing activity further supported this trend.

3. How did the mixed performance of key economic indicators, such as retail sales and fixed asset investment, influence the industrial profits decline in November?
The mixed performance of key economic indicators, such as retail sales and fixed asset investment, influenced the decline in industrial profits in November. Here's how:

1. Retail Sales Slowdown: Retail sales grew by 3 percent year-on-year in November, a significant slowdown from October's 4.8 percent growth and well below the 4.6 percent forecast. This slowdown in consumer spending indicates weak demand for goods produced by industrial enterprises, which can lead to lower sales and profits for these companies. (Source: China Briefing, December 18, 2024)
2. Fixed Asset Investment Disappointment: Fixed asset investment grew by 3.3 percent year-to-date in November, down from 3.4 percent in October. This fall short of expectations and highlights the challenges in stimulating investment, which is crucial for industrial production and profits. (Source: China Briefing, December 18, 2024)
3. Property Sector Drag: The property sector continued to drag on the broader economy, with real estate investment contracting by 10.4 percent for the January-to-November period. This prolonged downturn in the property sector can negatively impact industrial profits, as it reduces demand for construction materials and related products. (Source: China Briefing, December 18, 2024)

These factors, combined with the ongoing challenges in the property sector and weak consumer demand, contributed to the decline in industrial profits in November. Despite Beijing's stimulus measures, the mixed performance of key economic indicators suggests that the recovery is still fragile and uneven.

1. How have specific sectors, such as manufacturing and energy, responded to the stimulus measures in terms of profitability?
Based on the provided information, the manufacturing sector has shown resilience in the face of stimulus measures, with profits