SHANGHAI: China’s industrial enterprises see their earnings drop for the first time in three months, adding to evidence that the world’s second-largest economy is losing steam.
Industrial profits fell 5.5% last month from a year earlier, according to data released yesterday by the National Bureau of Statistics (NBS), after increases of more than 20% in each of the previous two months.
Bloomberg Economics had expected a gain of 2.8% in October.
For the first 10 months of the year, profits climbed 1.9%. Manufacturers and utilities continued to see fast growth while miners struggled to stem double-digit declines in earnings.
The surprise deterioration showed how a cooling economy is hurting companies’ bottom line, a worry because that risks adding downward pressure on investment and employment.
The slump is especially alarming after factory-gate deflation eased for three months in a row, with the government acting to curb overcapacity and cutthroat competition.
The earnings outlook remains gloomy since demand for commodities and manufactured goods could soften further.
Growth in industrial production weakened more than expected last month and retail sales only increased modestly, while investment posted an unprecedented decline for January-October.
The recent slowdown doesn’t mean that additional stimulus measures are on the table. Chinese policymakers are in no rush to act now that their annual growth target of around 5% for this year looks to be within reach.
The government will “continue to implement” existing policies and “promote coordinated efforts” to expand domestic demand and foster new growth drivers, said NBS analyst Yu Weining in a separate note.
Among the reasons for the weaker profits in October were “rather rapid increases” in financial expenses and the statistical effect of a high base last year, according to Yu.
“The drop in China’s industrial profits in October confirmed a weaker economy heading into the year-end. But the headline probably overstated the slowdown, given the strong gains in August and September that partly reflected low bases,” said Bloomberg Economics analyst Eric Zhu.
Private companies were hit the most, with their earnings growth in the first 10 months slowing to 1.9% from 5.1% in January-September, NBS data showed.
An increase in profits at foreign companies also moderated, while state-owned enterprises saw a marginal improvement. — Bloomberg
