CX Weekly Briefing: Chinese Industrial Profits Slump

A roundup of recent major news from China spans finance, economics, international relations, and the business and technology sectors.

In the realm of finance and economics, official data revealed that major Chinese industrial companies experienced a significant decline in profits, with a 9.1% year-on-year drop in May 2024, and a 1.1% fall over the first five months of the year. The National Bureau of Statistics attributed this downturn primarily to insufficient demand and falling prices, affecting many industrial sectors. However, equipment manufacturing performed relatively well due to government subsidies for equipment upgrades and trade-in programs for consumer goods[para. 3].

China is implementing a comprehensive fiscal reform roadmap in response to mounting financial pressures and changes in industrial structure, business models, and wealth distribution. This plan, confirmed by Finance Minister Lan Fo’an at the National People’s Congress Standing Committee, is designed to recalibrate the fiscal relationship between Beijing and local governments, reform the state budget and national tax structure, and establish clear implementation timelines, following reform directives from the Communist Party’s Third Plenum in July 2024[para. 3].

Six central government departments issued a joint statement urging financial institutions to support consumer spending, which remains a critical policy goal for the year. Measures proposed include enhancing access to credit for consumers and companies across industries such as retail, tourism, entertainment, and education, aiming to drive overall economic growth[para. 3].

Goldman Sachs expressed optimism regarding China’s stock market, forecasting that the CSI 300 Index could rise to 4,600 points — over a 10% increase from current levels — by the end of 2024. This forecast hinges on earnings growth overcoming potential headwinds such as changes in U.S. tariffs on Chinese goods and the effectiveness of fiscal support measures from Beijing[para. 3].

On the international front, U.S. President Donald Trump announced that the U.S. and China had signed a trade deal, following negotiations that recently concluded in London and Geneva. The deal involves China supplying rare earths to the U.S. in exchange for lifting certain American countermeasures, as reported by Bloomberg and confirmed by both sides[para. 3].

China is preparing a major military parade for September 3, 2024, to mark the 80th anniversary of the Japanese surrender in World War II. The Central Military Commission announced that all equipment displayed will be domestically produced, active-duty gear, underlining China's ongoing emphasis on military self-reliance and modernization[para. 3].

President Xi Jinping met Singapore’s Prime Minister Lawrence Wong in Beijing to commemorate 35 years of diplomatic ties. They discussed deepening cooperation in areas like digital economy, green development, and artificial intelligence, and reaffirmed commitments to peace, development, and broadening people-to-people exchanges[para. 3].

In business and tech, the European Union finalized measures restricting Chinese firms’ access to its public medical device market. Chinese companies are now barred from bidding on contracts above 5 million euros (about $5.8 million) and face component sourcing caps, affecting access to about 60% of the EU's 150-billion-euro medical tech procurement market. The measures could be reversed if China addresses market access concerns[para. 3].

Contemporary Amperex Technology Co. Ltd. (CATL), a major battery manufacturer, invested in Eacon Technology (unmanned mining trucks) and the newly founded robotaxi company Zao Fu Intelligent Technology. Eacon holds roughly half the domestic market for unmanned mining trucks, and both companies are aiming for technological expansion, including internationally[para. 3].

Finally, Meituan, China’s leading on-demand services provider, is restructuring to boost profitability. It is scaling back its struggling community group-buying business, Meituan Youxuan, reallocating staff, and increasing investment in its faster-growing instant retail enterprises, including Flash Purchase and Xiaoxiang Supermarket, to remain competitive amid shifts in consumer demands and the e-commerce landscape[para. 3].