Chinese Industrial Firms’ Profits Grow Fastest Since 2018

(Bloomberg) -- Profits at Chinese industrial enterprises expanded in July at the fastest pace since June 2018 as a result of improving market demand and lower production costs.

Industrial profits rose 19.6% in July from a year ago for a third straight monthly gain, data from the National Bureau of Statistics showed Thursday. For the January-July period, it fell 8.1%.

The rebound in profits has accompanied a recovery in industrial output seen since April. However, the slump in first quarter profits due to the economic contraction means that companies remain in the red for the year so far.

“Future profit growth is still uncertain,” Zhu Hong, a government economist wrote in a statement accompanying the data release. Companies face cash-flow pressures and a grim domestic and international situation, despite the acceleration in July.

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The increase is due to strong exports and moderating producer price deflation, and these should continue to support profits in coming months.

However bottlenecks in production could squeeze margins, household demand remains far from its pre-pandemic levels, and U.S.-China tensions may put more obstacles in the way of recovery.

David Qu, Bloomberg Economics

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Profit growth in the equipment manufacturing industry is speeding up, especially in the automobile and electronics sectors, the bureau said. Profits in high-tech manufacturing also have increased substantially.

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With assistance from Bloomberg