Caixin
Nov 27, 2018 08:36 PM
ECONOMY

China Industrial Profits Growth Hit 8-Month Low

*Japanese investment company Nomura Holdings said the downtrend in industrial profit growth would continue given weakening domestic demand, high financing costs, rising credit defaults and the escalating trade war

*China International Capital Corp. said the Chinese market would face a “recession” in 2019 with property investment slowing amid tightening regulation

(Beijing) — China’s industrial profits grew 3.6% year-over-year in October, the lowest since March, according to data released Tuesday by the National Bureau of Statistics (NBS) that imply a continued slowing of China’s economic growth.

The total profit of the industrial sector from January through October grew 13.6% to 5.5 trillion yuan, 1.1 percentage points lower than the first nine months, and 9.7 percentage points lower than the same period last year.

The softened growth was due to the slowing growth of producer prices and a relatively high comparison base last year, said Si Heping, an NBS official, in an explanatory statement on the data.

Although China’s investment growth picked up in October as the central government called for more infrastructure investment, the producer price index nevertheless fell to a seven-month low of 3.3% the same month, NBS data showed. Analysts have attributed the slowdown in factory inflation to the continued weakness of domestic demand and a high comparison base last year.

The growing profits of the iron and steel industry, oil extraction and refining, construction and building materials and chemicals contributed 63.7% of the total profits in the first ten months, Si said.

However, future ferrous prices faced downward pressure amid the uncertainty of the trade war between China and the U.S., and slowing economic growth, said Li Hongmei, the head of content at metals platform Mysteel Global.

China’s market will face a year of “recession” in 2019, as property investment slows under tight government regulation, according to a report by China International Capital Corporation Limited (CICC) on Nov. 12.

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Apart from the previous U.S. plan to raise the current 10% tariffs to 25% from January, U.S. President Donald Trump said Monday in an interview with the Wall Street Journal he would put 10% to 25% tariffs on the rest of Chinese imports, or $267 billion, which are not subject to duties at the moment, if he and his Chinese counterpart Xi Jinping do not make a deal at the G20 summit at the end of November.

The profit margin of industrial corporates narrowed to 6.68% in October from 6.94% in September after seasonal adjustment, according to a report by CICC. The deceasing profitability of the companies, including state-owned enterprises, will affect government revenue and limit the expansion of government spending, the report said.

“We expect the downtrend in industrial profit growth to continue in the months ahead given weakening domestic demand, already-high financing costs, rising credit defaults and the escalation in the China-US trade conflict,” said a report by Japanese investment company Nomura Holdings Inc.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)

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