China’s industrial profits posted double-digit gains, but the recovery is uneven

© Reuters. Workers are seen near a crane that lifts offshore wind power equipment by China Construction Industrial and Energy Engineering Group Co. at the port in Nanjing, Jiangsu province, China on April 23, 2019./file photo

BEIJING (Reuters) – Chinese industrial profits posted double-digit gains for November as overall output improved even as weak demand continued to weigh on expectations for business growth, fueling calls for more macro policy support.

The 29.5% rise in profit added to a 2.7% rise in October and a rebound in industrial production in November, although other sectors of the world’s second-largest economy still missed forecasts.

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

November’s profit growth was driven by an accelerated increase in industrial profits and investment returns during the month, NBS statistician Yu Weining said in an accompanying statement.

With a raft of pro-growth measures to support the uneven recovery from COVID, Asia’s largest economy is widely expected to meet the government’s growth target of around 5% for this year. Industrial earnings extended gains for a fourth straight month.

Both industrial production and earnings growth for November reflected continued improvement in the overall manufacturing sector, said Zhou Maohua, an analyst at China Everbright (OTC:) Bank.

According to him, the macro policy to save industrial companies, the low statistical base last year and seasonality also contributed to the upward trend.

Officials are confident of more favorable economic conditions in 2024. However, economic recovery remains uncertain due to persistent weakness in the real estate sector, rising deflationary pressures and weak global demand, renewing calls for stimulus.

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

The unevenness among industry sectors remains evident, with high-tech and equipment makers seeing rapid profit growth, while real estate-related sectors are still squeezed by falling profits, Zhou said.

The analyst said he hoped to see an “optimized” mix of macro policies to support growth.

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

There is now little chance that industrial profits will return to growth through 2023, with Chinese producer prices expected to remain under pressure for the foreseeable future, said Zheng Houcheng, chief macro economist at Yingda Securities.

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

The industrial profit figures include firms with annual revenues of at least 20 million yuan ($2.80 million) from their core operations.

($1 = 7.1339 )