China’s industrial profits dropped at a slower pace in June, though worsening factory-gate deflation and slowing consumer spending continued to squeeze business’s margins.
(Bloomberg) — China’s industrial profits dropped at a slower pace in June, though worsening factory-gate deflation and slowing consumer spending continued to squeeze business’s margins.
Profits last month slid 8.3% from a year earlier, compared with a decrease of 12.6% in May, data published by the National Bureau of Statistics showed Thursday. For the first half of 2023, profits fell 16.8%, easing from the 18.8% drop in the first five months.
“With the continued recovery in the economy this year and the effects of various policies kicking in, industrial production has been rebounding steadily and profits at companies have been improving,” Sun Xiao, an NBS analyst, said in a separate statement.
The economy’s recovery lost traction in the second quarter as the property market slumped, exports contracted and retail sales growth waned. Soft demand led consumer inflation to flatline, while producer prices dropped at a deeper pace.
The streak of industrial profit declines underlines the deteriorating operating conditions for companies. Business confidence has been battered and firms have held off on investing, which in turn has pressured growth.
At a meeting this week about the rest of the year’s economic policy agenda, China’s top leaders signaled more support for the troubled real estate sector, as well as pledged to boost consumption and resolve local government debt.
However, they fell short of announcing large-scale stimulus to support the recovery as they appeared confident that growth is still on track to achieve the rather conservative official goal of around 5% this year.
Authorities at that meeting of the Politburo vowed to “concretely optimize” the development environment for private firms. They said that “operating difficulties at some companies” is one of the “new” challenges faced by the economy.
The government has ramped up a campaign to boost the private sector, with the top economic planning agency earlier this week unveiling a plan to offer thousands of projects worth a total investment of $445 billion to attract private capital.
The decline in profits at state-owned enterprises deepened to 21% in the first half from a 17.7% decrease in the January-May period. Profit drops at private firms and foreign companies both slowed from the first five months of the year to 13.5% and 12.8%, respectively.
(Updates with more details.)
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