دار الخليج

Industrial profits slump deepens in China on soft demand, high costs

The sharp 22.9% contraction followed a 4.0% fall in industrial profits for the whole of 2022, pointing to a downbeat start to the year for factories at large

The slump in Chinese industrial firms’ profits deepened in the first two months of 2023, weighed by lacklustre demand and stubbornly high costs as the world’s second-largest economy struggled to fully shake the long-term effects of COVID.

The sharp 22.9 per cent contraction followed a 4.0 per cent fall in industrial profits for the whole of 2022, data from the National Bureau of Statistics (NBS) showed on Monday, pointing to a downbeat start to the year for factories at large.

NBS statistician Sun Xiao attributed the decline to still sot demand despite an uptick in industrial output, according to a statement on the bureau’s website.

Zhou Maohua, an analyst at China Everbright Bank, said a decline in auto sector profits was a notable drag on manufacturing profits, thanks in large part to a moderation in overall demand, production costs, fading auto subsidies and price wars.

“Currently, international commodity prices remain at high levels and overseas demand is still on a downtrend,” Zhou wrote. “Industrial and manufacturing departments still need to offer policy support, alleviating fiscal, cost and financing pressures and stabilizing firm confidence.”

Foreign firms posted a 35.7 per cent decline in profits, while private-sector firms saw their profits down 19.9 per cent, according to a breakdown of the 887.21 billion yuan ($128.92 billion) profits.

Profits sank for 28 of 41 major industrial sectors during the period, with the computer, telecommunications and other electronic equipment manufacturing industry reporting the heftiest fall at 77.1 per cent.

The Monday data follows a flurry of economic indicators that show an uneven recovery from a bruising three-year batle against the COVID pandemic.

Factory output growth accelerated to 2.4 per cent in January-february, data showed earlier this month. The reading slightly undershot a 2.6 per cent rise forecast in a Reuters poll of analysts.

While retail sales swung back to growth, property investment continued to decline despite robust government support aimed at reviving the ailing housing market.

Beijing is seeking to get the economy back on a recovery track and set a modest growth target of around 5 per cent for this year at this month’s annual parliamentary gathering.

China’s central bank this month unexpectedly cut the amount of cash that banks must hold as reserves for the first time this year to help support the economic recovery.

During an executive meeting of the State Council, or the cabinet, China’s new premier Li Qiang pledged to push the overall economy to improve persistently while fending off major risks effectively, according to state media.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan from their main operations.

Combined January and February data are published for most economic indicators to flatten out distortions from the shifting timing of the Lunar New Year.

Meanwhile China’s yuan weakened on Monday as the US dollar firmed and ater data showed a sharp decline in China’s industrial profits for January and February. The yuan dropped to its lowest point since last Wednesday in early morning trade.

The decline was in line with other Asian currencies ater the US dollar extended gains made on comments by US regulators that the banking sector remained “sound and resilient”.

Profits for China’s industrial firms shrank 22.9 per cent in the first two months this year from a year ago, as the factory sector struggles to claw its way out of the slump caused by Covid-related disruptions. That followed a 4 per cent drop in industrial profits for 2022 and suggests an uneven path to recovery for the economy. Retail sales for January-february showed stronger growth momentum. “While the industrial profits data are quite negative, the yuan was more dragged down by the dollar’s strength,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.

“Historically, the market reacts more to economic data such as the purchasing managers’ index” which is due out Friday, he said. Ater opening at 6.8730 per dollar, spot yuan was changing hands at 6.8784 at midday, 105 pips weaker than the previous late session close and 0.10% away from the midpoint.

The People’s Bank of China set the midpoint rate at 6.8714 per US dollar prior to the market open, weaker than the previous fix of 6.8374. The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day. The dollar index, which measures the currency against six rivals, was up 0.01 per cent at 103.000, having gained 0.5 per cent on Friday. Investors will be closely watching US gross domestic product data for the last quarter of 2022 that is due out on Thursday, while core PCE CPI, the Fed-favoured inflation gauge, is slated for Friday.

BUSINESS

en-ae

2023-03-28T07:00:00.0000000Z

2023-03-28T07:00:00.0000000Z

https://daralkhaleej.pressreader.com/article/281822878053839

Dar AlKhaleej