Slower industrial profit growth in China heightens hopes for political support

BEIJING, Aug.27 (Reuters) – Chinese industrial company profits in July slowed for the fifth consecutive month, adding to growing evidence of a loss of momentum in the world’s second-largest economy and strengthening the case for the maintaining political support for some time longer.

High commodity prices and supply chain constraints due to extreme weather conditions as well as sporadic cases of coronavirus have weighed on manufacturing sector revenues, data from the National Bureau of Statistics (NBS) showed on Friday. .

Profits of industrial companies in July rose 16.4 percent on an annual basis – the slowest figure this year – to 703.67 billion yuan ($ 108.51 billion), the NBS reported. This compares to a 20% gain in June.

China’s economy has experienced an impressive recovery from a coronavirus crisis, but the expansion falters as businesses grapple with higher costs and supply bottlenecks, and consumers remain cautious in their spending.

Headwinds to growth lower expectations Beijing will maintain, if not strengthen, its accommodative position. The People’s Bank of China lowered the reserve requirement ratio of banks in mid-July, freeing up about 1,000 billion yuan ($ 154.19 billion) in long-term liquidity.

“On economic fundamentals, signs of a noticeable economic slowdown have appeared, and I expect policymakers to refine macroeconomic policy, currently neutral but with a loosening bias, in a preventative manner to counter the headwinds, ”Nie said. Wen, Shanghai-based economist at Hwabao Trust.

“If growth continues to decline, the government could even roll out quantitative measures,” Nie said.

Zhu Hong, senior statistician at NBS, attributed the slowdown in growth in July to sporadic cases of COVID and flooding, as well as high commodity prices that put pressure on the profitability of small, middleman businesses and in downstream.

“Overall, the profits of industrial enterprises above the designated size maintained steady growth in July, but we must recognize that the inequality and uncertainty in the recovery of corporate profits still exist,” said Zhu said.

In the first seven months of the year, industrial company profits rose 57.3% year on year, due to base effects, although the pace slowed from the increase of 66.9 % in the first half of 2021.

Production growth at Chinese factories slowed sharply in July, and analysts expect it to come under increasing pressure from COVID-19 social distancing rules and tightening measures in the real estate sector and highly polluting industries. Read more

Commodity prices have fallen in recent months, hurting the results of many mid-level and downstream factories. Chinese coke and coking coal futures hit record highs this week, while iron ore futures rose for the fourth day on Thursday.

The more transmissible Delta strain COVID-19 cases in July and record rainfall in the transportation hub of Henan province have also hurt industrial production. The terminal at China’s main port of Ningbo has halted services as part of the government’s efforts to curb the spread of the virus. Read more

The liabilities of industrial companies increased by 8.2% year-on-year at the end of July, against a growth of 8.5% at the end of June.

($ 1 = 6.4850 yuan Chinese renminbi)

Reporting by Colin Qian, Stella Qiu and Ryan Woo Editing by Shri Navaratnam

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