China’s Industrial Profits Plummet 13.1% Amid Demand Decline

Industrial profits in China have experienced a significant downturn, declining for the second consecutive month in November 2023. According to data from the National Bureau of Statistics, profits fell by 13.1% year-on-year, a steep increase from a 5.5% drop reported in October. This downturn raises concerns about the impact of weak domestic demand and ongoing deflation on corporate earnings and the overall economic recovery.

The sharper-than-anticipated decline was more severe than the 15% drop forecasted by Bloomberg Economics. For the first eleven months of the year, industrial profits have shown minimal growth, edging up by only 0.1%. This figure is a noticeable slowdown compared to a 1.9% increase recorded from January to October, indicating a loss of momentum as the year draws to a close.

Key Factors Contributing to the Decline

Economists attribute this contraction in industrial profits to several factors, including weak household consumption, reduced investment, and ongoing factory-gate deflation. Despite these challenges, some sectors, particularly exports, have demonstrated resilience. According to Reuters, manufacturing profits increased by 5% during the first eleven months of the year, buoyed by advancements in industries such as aerospace and electronics. Utilities also maintained growth, while mining companies faced substantial challenges, with coal-related sectors experiencing double-digit declines.

The ongoing contraction in November could further impact investment and hiring decisions, raising concerns among analysts about the near-term economic outlook. Despite this, policymakers in Beijing have yet to announce additional stimulus measures, expressing confidence in their ability to meet an annual growth target of around 5%.

Future Economic Expectations

Looking ahead, economists predict only modest monetary easing and limited fiscal expansion in 2024. This forecast comes amid increasing calls for stronger initiatives to stimulate domestic demand. As China navigates these economic challenges, the focus remains on balancing growth with necessary reforms. The situation underscores the delicate interplay between policy measures and market realities in the world’s second-largest economy.