China's industrial sector has hit a significant speed bump, with profits tumbling at their fastest pace in more than a year during November. This sharp decline underscores the persistent headwinds facing the world's second-largest economy, even as its export engine shows resilience.
Steep Decline in Profits Amid Broader Economic Cooling
According to data released by the National Bureau of Statistics (NBS) on Saturday, profits earned by China's major industrial firms plunged by 13.1 per cent in November compared to the same period last year. This marks the most severe year-on-year contraction in over a year and represents a significant worsening from October's 5.5 per cent drop.
The alarming figures point to a broader cooling of economic activity as the year draws to a close. Xu Tianchen, a senior economist at the Economist Intelligence Unit, attributed this trend primarily to soft domestic demand. "The profit numbers show a broader cooling in economic activity in the fourth quarter, mainly due to the drag from soft domestic demand," Xu stated. The data covers firms with annual main business revenue of at least 20 million yuan ($2.85 million).
A Mixed Bag: Auto & Tech Shine, Coal Sector Collapses
While the overall picture was bleak, a few sectors managed to buck the trend and post gains. The automobile industry demonstrated resilience with a 7.5 per cent rise in profitability. Similarly, the high-tech industrial sector was a bright spot, registering a solid 10 per cent increase in profits.
However, these gains were overshadowed by severe losses in other areas. The coal mining industry faced a devastating 47.3 per cent collapse in profitability, highlighting the uneven nature of the economic slowdown. For the first eleven months of the year, the cumulative picture is grim, with industrial profits showing a mere 0.1% increase, a stark slowdown from the 1.9% growth recorded in the same period last year.
Mounting Pressure for Government Support and Policy Response
The persistent weakness, characterized by factory-gate deflation and tepid consumer spending, is increasing pressure on Chinese authorities to roll out more substantial support measures. Policymakers have taken note, recently pledging to maintain "proactive" fiscal policies in the coming year.
The government's commitments extend to improving employment, boosting domestic consumption, stabilizing prices, and providing aid to the deeply troubled property market. NBS Chief Statistician Yu Weining emphasized that industrial enterprises continue to require enhanced support, particularly given the uncertain international landscape and the ongoing transition in the country's growth drivers.
Independent analyses suggest the economic reality may be tougher than official targets indicate. A Reuters report cited an estimate from the Rhodium Group think tank, projecting China's economic growth for the year at only 2.5 per cent to 3 per cent. This is roughly half the growth rate hinted at by official channels, painting a picture of an economy grappling with significant internal and external challenges.
