China's industrial profits continued their downward trend, marking the fourth consecutive month of decline as the economy struggles to overcome persistent challenges. According to the National Bureau of Statistics (NBS), industrial profits fell 7.3% in November 2024, compared to the same month last year. This drop follows significant reductions of 10% and 27.1% seen earlier, marking what analysts describe as the sharpest annual decline since records began in 2000.
The NBS report highlights the challenges facing large Chinese companies as they grapple with the consequences of weak domestic demand and trade tensions with the incoming U.S. administration under President-elect Donald Trump. Collectively, profits for the first 11 months of 2024 shrank by 4.7% from the previous year. This economic climate signals growing pressure on corporate earnings, prompting calls for more effective policy measures to encourage spending and investment among businesses and consumers alike.
Despite the recent declines, some experts believe the worst might be over. "I think it's basically just bottomed out, and now it's on the way up," said Suan Teck Kin, head of research at UOB, indicating cautious optimism surrounding the potential for recovery driven by new government stimulus measures.
Factors contributing to the current economic predicament include continued deflationary trends and stagnated household spending, which has significantly impacted the industrial sector's sales figures. The mining industry's profits saw the steepest decline, plunging 13.2% year-on-year, compared to manufacturing, which dropped 4.6%. Contrastingly, the utilities sector, encompassing electricity and gas supply, experienced modest gains, with profits rising by 10.9%.
The declines signal increasing reluctance among consumers and businesses to spend amid uncertainties surrounding both domestic and international markets. Analysts from various sectors argue this post-pandemic struggle could hinder any attempts made by policymakers to stimulate economic activity. During key meetings, Chinese leaders have committed to raising fiscal deficits and loosening monetary policy to support economic growth initiatives, with promises to issue record treasury bonds to offer financial steadiness if economic conditions continue to deteriorate.
For November, profits fell at their slowest pace during the last four months, landing at 7.3%. This gradual reduction compared to 10% earlier is perceived positively, as it could indicate the effectiveness of recent economic policies aimed at rejuvenation.
More than ever, China's future economic performance will heavily rely on the government’s fiscal policies. With expectations set for GDP growth to hover around 4.9% next year, analysts advise mindfulness toward persistent pressures resulting from the beleaguered property market and global trade disruptions. Zhou Maohua from China Everbright Bank stated, "We are expected to see the biggest drop since at least 2000 due to the current economic climate," emphasizing the need for rapidly effective measures.
Some positive signals emerged from the data as well. Manufacturers of wearable smart devices noted profits surged by 90% year-on-year due to supportive policies aimed at driving technological advancement and consumer needs. Yu Weining from NBS reported varying degrees of profit recovery across industries, showcasing sectors such as home appliance manufacturing where profits quadrupled, citing the promotion of high-end and sustainable production methods.
Nonetheless, there remains significant uncertainty surrounding the impact of new tariffs and trade policies forthcoming from the U.S. These changes could intensify existing challenges and complicate China’s recovery efforts as foreign firms also faced profit declines during the first 11 months this year, recorded at 0.8% down.
Further complicacies stem from the raw rebuilding phases witnessed within the Chinese real estate market as household confidence struggles to bounce back amid falling home prices. The NBS highlighted mixed signals within the economic indicators, noting industrial output did accelerate, but still, overall housing prices faltered at their slowest pace within 17 months. Amid the economic fog, the expectation remains—if the right conditions blend together, the industrial sector may yet recover.
Beijing's policymakers have flagged the need for additional direct fiscal support to consumers alongside social security enhancements, aimed at boosting demand and consumer sentiment as China gears up to face the incoming year brimming with uncertainty.
The situation demands eyeing future measures closely, potentially hinting at gradual improvement. Experts assert adjusting the monetary policies combined with proposed fiscal boosts could provide the noticeable support necessary to lead China toward clarity and stabilization within its industry.
