China Industrial Profits Slump as Economy Wilts Under Covid

Profits for China's manufacturers were down 13% in the first ten months of 2022. Photo: Reuters

China has seen its industrial profits slump this year as Covid outbreaks and Beijing’s uncompromising approach to the virus continue to depress the world’s No2 economy.

Industrial profits slid 3.0% in the first 10 months of 2022 from a year earlier. That compares with a 2.3% drop for January-September, National Bureau of Statistics data released on Sunday showed.

The bureau has not reported standalone monthly figures since July. Profits declined for 22 of China’s 41 major industrial sectors.

Also on AF: Huawei, ZTE Equipment Sales Banned by US Over Security Risks

“Recent outbreaks of domestic epidemics have frequently occurred, the risk of global economic recession has intensified, and industrial enterprises are facing greater pressure,” the bureau said in a statement.

The downbeat data for the world’s second-largest economy also reflects a debt payment crisis within the country’s property sector and a sharp slowdown in consumer spending.

Since October, outbreaks have only grown and mounting anger over China’s harsh zero-Covid policies that aim to stamp out the virus sparked rare protests by citizens over the weekend. China on Sunday reported a fourth straight day of record cases.

Profits for manufacturers were down 13.4% in the first ten months, slightly lower than the 13.2% fall in January-September.

“Industrial profits continued to come under pressure as prices were weighed down by overall weak domestic demand and input costs remained high in some manufacturing sectors,” said China Everbright Bank analyst Zhou Maohua.

Petroleum, Coal, Fuel Processing Profits Drop

Sectors showing the steepest declines included the petroleum, coal and fuel processing industry which saw profits tumble 70.9%. That compares with a 67.7% drop for the first nine months.

Some sectors that have seen strong profit growth saw the pace of growth slow significantly.

In the mining sector, profits grew 60.4 per cent in January-October compared with a 76.0 per cent gain for the first nine months.

Some analysts now believe China’s GDP could contract in the current quarter from the third quarter, and have cut their 2023 forecasts, predicting the path to reopening the economy will be slow and bumpy.

Analysts from Nomura expect fourth-quarter GDP to shrink 0.3% from the preceding three months, and cut their fourth-quarter growth forecast on a year-on-year basis to 2.4% from 2.8%.

Likewise, analysts from Oxford Economics cut their 2022 and 2023 GDP forecasts as they believe a broadening of lockdown measures is expected.

China Stimulus Measures

To prop up the faltering economy, authorities have rolled out a flurry of measures recently, including moves to ease some Covid curbs and provide financial support to the property market, which have underpinned market sentiment.

On Friday, China said it would cut the amount of cash that banks must hold as reserves for the second time this year, releasing about 500 billion yuan ($69.8 billion) in long-term liquidity.

Last month, China’s industrial output surged 5.0% from a year earlier, missing expectations for a 5.2% gain in a Reuters poll and slowing from the 6.3% growth seen in September.

Industrial profit data covers large firms with annual revenues above 20 million yuan from their main operations.

Reuters with additional editing by Sean O’Meara

China Industry Hub Wuxi Tightens Covid Curbs After Outbreak

Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.