China’s industrial profits continued their downward trend in October, falling by 10% compared to the same month last year, highlighting the challenges faced by Beijing’s efforts to reverse a slump in corporate earnings. This marks the third consecutive month of decline, following a sharp 27.1% drop in September, the steepest decrease since March 2020. Industrial profits are a critical measure of financial health for China’s factories, mines, and utilities.
For the first ten months of the year, profits of industrial firms declined by 4.3% year-on-year, according to data released by the National Bureau of Statistics (NBS) on Wednesday. This decline is slightly larger than the 3.5% drop reported through September. The statistics bureau attributed the smaller October decline to the implementation of Beijing’s stimulus measures, which showed signs of improving profitability in certain sectors, particularly high-tech and equipment manufacturing.
“The deceleration in the decline of industrial profits reflects a gradual stabilization of China’s economic conditions, albeit from a low base,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital. Hsiao noted a temporary surge in demand as exporters rushed to ship goods to the United States ahead of anticipated tariff hikes. He expects more substantial fiscal support from Beijing in the coming year to bolster corporate earnings further.
The performance across sectors varied. State-owned firms reported an 8.2% decline in profits between January and October, while private enterprises experienced a smaller drop of 1.3%. Foreign-funded industrial firms, including those with investments from Hong Kong, Macao, and Taiwan, saw a marginal profit increase of 0.9% during the same period.
Despite recent stimulus measures, persistent deflationary pressures remain a challenge. October’s consumer price index rose just 0.3% year-on-year, the slowest pace since June, while the producer price index fell by 2.9%, worsening from a 2.8% decline in September. Real estate investment continued to struggle, declining by 10.3% in the year through October compared to a 10.1% drop the previous month.
On a brighter note, retail sales in October outperformed expectations, growing 4.8% year-on-year, and the unemployment rate dipped to 5% from 5.1% in September. However, the world’s second-largest economy grew at its slowest pace in the third quarter since early 2023, weighed down by weak domestic consumption and a prolonged housing market downturn.
Beijing has intensified its stimulus efforts since late September to meet its growth target of around 5% for the year. The official manufacturing purchasing managers’ index for November, expected on Saturday, is projected to slightly expand to 50.3 from 50.1 in October, indicating marginal improvement in industrial activity.
