Chinese economy now stable,industrial profits up
By Rhod Mackenzie
There are increasing signs that the Chinese economy is stabilising. August was the first month in more than a year that the profits at the leading industrial companies rose. According to the National Bureau of Statistics (NBS) of China, profits in the last month of the summer rose by 17.2% on an annualised basis. As analyst Yu Weining points out, this is the first time since last summer that profits have risen. In June and July they fell by 6.7% and 8.3% respectively, he recalls. In general, in the first eight months of 2023, the profits of industrial enterprises with an annual income of at least 20 million yuan ($2.8 million) decreased by 11.7% compared to the same period last year, amounting to 4.66 trillion yuan. Based on the August indicators, the 8-month decline was 3.8% less than in January-July.
August's profit growth points to improved demand. Chinese economists attribute the changes to the Chinese government's measures to support the property market plus consumer spending. Industrial production also rose in August as deflation eased.
"Thanks to the growth in industrial production, the improved link between production and sales, the income of industrial enterprises gradually started to rise," Yu Weining said in a statement.
Profits in the mining sector also rose in late summer, according to Zhaopeng Xing,a senior strategist at the Australia & New Zealand Banking Group Ltd.
"As consumption improves, you can expect profit growth," he says.
"The rise in Chinese comppany industrial profits in August is further evidence that industrial activity has reached its floor and is on the rise," agrees economist Eric Zhu. "The magnitude of the growth suggests that recent (government) support measures are taking effect. However, given the weakness of both external and domestic demand, it will take some time for profits to fully rebound. Moreover, additional support may well be needed".
The main risk to economic stabilisation remains the crisis in the construction industry. Economists have been lowering their forecasts for China's GDP growth all year. They now expect growth to reach only 5% by the end of the year.
There also a statement put out by China's central bank promising more support for the economy. The statement said the government would focus on implementing the monetary easing programme already underway, keeping liquidity at an "acceptable" level and expanding credit.
The People's Bank of China (PBOC) will also encourage prices to rise but to remain at reasonable levels, we will increase support for selected industrial sectors, including small enterprises, the green sector, technological innovation and infrastructure. Of course,financiers have not forgotten the construction industry and the property market. There was also included in the statement a renewed pledge to prevent sharp fluctuations in the yuan exchange rate.
