Daily Management Review

Industrial Profits In China Note Highest Drop Since Late 2011


Industrial Profits In China Note Highest Drop Since Late 2011
The first two months of the current year marked the worst slump in profits since late 2011 for the industrial companies of China according to data released on Wednesday. .this was because of drop in domestic demand, because of a slowdown of the Chinese economy, and a drop in demand in foreign markets as well.
The current woes of the world’s second largest economy have apparently been increased by the sharp decline in profits of industrial firms of the country. Last year, the growth reported in the Chinese eop0cnomy was the slowest for its in the last three decades. The predicted growth rate of the economy for the current year has already been trimmed down by the Chinese government from the actual rate of 6.6 per cent in 2018 to between 6.0 and 6.5 per cent.
The National Bureau of Statistics (NBS) said on its website on Wednesday that there was a 14 per cent year-on-year drop in January-February in the profits notched up by China’s industrial firms which came at 708.01 billion yuan or $105.50 billion. And since news agency Reuters began keeping records in October 2011, this drop was the biggest contraction.
In order to smooth out distortions caused by the week-long China’s Lunar New Year, the latest data combines figures for January and February.
Zhu Hong of the statistics bureau said in a statement accompanying the data that price contractions in key industrial sectors such as auto, oil processing, steel and chemical industries resulted in the drop in profits. Hong also reported a slowdown in production and sales.
According to official data, compared to a year earlier, there was a drop of 37.1 billion yuan in the profits in the auto sector while there was a drop of 31.7 billion yuan in the profits in the oil processing industry.
“The timing of Lunar New Year holidays that fell in early February also had a bigger negative impact on business operations this year than in 201,” Zhu said. .
There has been pressure on factory activity, corporate earnings, business sentiment and overall consumption because of the trade war with the United States which has dented the economic outlook for China.
In January-February, while there was very little increase in factory-gate inflation, there was fall to a 17 year low for growth in China’s manufacturing output. These two data indicated the deepening strains throughout the Chinese economy.
“Although it’s possible U.S. and China could come to a trade deal in the near future, it still remains a question that it will help reverse the decline in China’s exports,” said Betty Wang, senior China economist at ANZ. One of the other persistent concerns was global demand, he added.
Li Dongsheng, CEO of TCL Corp had said in March that the manufacturing sector was set to clock a profit margin of less than 5 per cent and losses are consequently being suffered by many companies.
“I advise the government to further lower value-added tax, and if implemented, it will effectively boost the profit-making ability of the manufacturing industry,” said Li.