China’s industrial profits fall amid slowdown fears

China’s industrial profits fall amid slowdown fears
China’s industrial firms have been forced to scale back investment after profits weakened in June, driven by dramatic declines in the steel, auto and oil processing sectors. (Reuters)
Updated 28 July 2019

China’s industrial profits fall amid slowdown fears

China’s industrial profits fall amid slowdown fears
  • Economic growth slows to near 30-year low as tougher US tariffs begin to bite

BEIJING: Profits earned by China’s industrial firms contracted in June after a brief gain the previous month, fueling concern that a slowdown in manufacturing from a bruising trade war will drag on economic growth.

China’s industrial profits have been softening since the second half of 2018 as the economy slowed and the US-China trade dispute escalated, with many industrial firms putting off business decisions and scaling back manufacturing investment.
Economic growth in the second quarter slowed to a near 30-year low. Industrial profits fell 3.1 percent in June from a year earlier to 601.9 billion yuan ($87.5 billion), according to data released by the National Bureau of Statistics (NBS) on Saturday, following a 1.1 percent gain in May.
In the first six months, industrial firms earned profits of 2.98 trillion yuan, down 2.4 percent from a year earlier, compared with a 2.3 percent drop in January-May.
The drop in first-half profits was driven by declining profits in the auto, oil processing and steel sectors, Zhu Hong of the statistics bureau said in a statement accompanying the data.
Producer price inflation, one gauge of industrial profitability, eased to zero in June from a year earlier, rekindling worries about deflation, which could prompt authorities to launch more aggressive stimulus measures.
US and Chinese negotiators will meet on Tuesday for the first time since their presidents, Donald Trump and Xi Jinping, agreed in late June to revive talks in a bid to end the year-long trade war.
The governments of the world’s largest economies have levied billions of dollars of tariffs on each other’s imports, disrupting global supply chains and shaking financial markets in the dispute over how China does business with the rest of the world.

FASTFACT

$200bn - The US has imposed tariffs on $200 billion of Chinese goods.

June marked the first full month of higher US tariffs on $200 billion of Chinese goods, which the US imposed after trade talks broke down. Both exports and imports fell.
Saturday’s data showed that profits from the construction material and machinery industries helped cushion the fall in overall profits in the first half, likely due to higher government spending on infrastructure, which has supported some companies, such as railway equipment makers, miners and metal producers.
Sany Heavy Industry Co. Ltd. said this month that it expected first-half profits to jump by 91.8 percent-106.6 percent from a year earlier.
However, earnings for telecommunications and electronic equipment manufacturers, which are more vulnerable to US tariffs than other product classes, declined by 7.9 percent in Jan-June.
The most-actively traded iron ore contract on the Dalian Commodity Exchange rose by 16.4 percent in June, weighing on profits in the steel sector.
Profits at China’s state-owned industrial firms were down 8.7 percent on an annual basis for the first six months, according to the statistics bureau.
Liabilities of industrial firms rose 5.6 percent year-on-year as of the end of June versus a 5.3 percent increase by end-May.