China's economy faces ongoing trials marked by persistent weak economic data, which is expected to persist as August draws to a close.
On Thursday, August 31, the results of the monthly surveys for the manufacturing and service sectors are due to be released. These final figures are unlikely to present an optimistic picture, aligning with the broader trend observed throughout much of 2023.
Preceding this release, July's inflation data revealed deflation both at the consumer and industry levels. Trade performance also deteriorated, registering the weakest figures since the pandemic years, despite the initial justifications for those outcomes. Exports experienced a significant decline in July, while imports also contracted.
Additionally, retail sales, production, and investment figures all underperformed, demonstrating newfound vulnerabilities. Notably, property investment weakened, with major developer Country Garden facing challenges and defaulting on some debt repayments. Bank loans decelerated sharply, contrary to expectations of a moderately sluggish performance last month. Moreover, the recent industrial profit data for July marked the seventh consecutive monthly decline.
Amidst these challenges, numerous Chinese companies are set to release their second-quarter and June-half earnings and sales reports this week.
While industrial profits data might rank lower in terms of importance compared to high-priority indicators such as inflation and trade, it provides valuable insights into the current issues afflicting the Chinese economy. In July, profits for China's industrial firms witnessed a 6.7% decline year-on-year, indicative of the impact of weak demand in the post-pandemic recovery phase.
Profits experienced a 15.5% contraction year-on-year over the initial seven months of the year, following a 16.8% decline in the first half. These figures pale in comparison to the mere 4% drop observed throughout 2022 when the government imposed stringent Covid-related restrictions.
Notably, the June figure recorded an 8.3% decline. NBS statistician Sun Xiao highlighted the easing pressure on raw material costs and improved overall unit costs for industrial enterprises due to low commodity prices.
This trend was reflected across various sectors: state-owned enterprises reported a 20.3% earnings drop in the first seven months, foreign firms recorded a 12.4% decline, and private-sector companies faced a 10.7% fall.
Out of 41 major industrial sectors, profits declined for 28 during the period. Industries like ferrous metal smelting and rolling processing experienced a significant 90.5% slump, while petroleum, coke, and coal reported an 87% downturn. Other sectors, such as coal mining and washing (26.2% decrease) and oil and natural gas extraction (-11.4% dip), also faced challenges.
The central bank has vowed to maintain a "precise and forceful" policy to support recovery, although it remains uncertain whether more substantial measures will be implemented to bolster growth. Despite two interest rate cuts in three months, the central bank's efforts have yet to yield significant results. The ongoing depreciation of the yuan, particularly the offshore yuan, also poses challenges.
Notably, the industrial profit data covers firms with annual revenues of at least 20 million yuan ($2.77 million) from their primary operations.
