Chinese Industrial Companies' Profits Decline at Fastest Rate in Over a Year

SadaNews - The profits of Chinese industrial companies declined at their fastest rate in over a year last month, as President Xi Jinping's economic plans struggle to mitigate the effects of excessive industrial production and weak consumer confidence.

Data from the National Bureau of Statistics showed that profits of industrial companies with annual revenues exceeding 20 million yuan (approximately $2.8 million) fell by 13.1% in November compared to the same period last year, down from a decline of 5.5% in October.

The drop in November led to a reduction in profit growth since the beginning of the year to just 0.1% compared to the same period in 2024, after growth during the period from January to October was 1.9%.

The Chinese economy has struggled to identify long-term growth drivers following the collapse of the debt-fueled real estate sector, which is now entering its fifth year of crisis, according to the Financial Times.

While China has relied on low-cost goods exports to support overall growth, the world's second-largest economy has faced negative inflationary pressures, weak domestic demand, and declining investment, with the producer price index remaining in negative territory for three consecutive years.

Recent factory data highlights the challenge facing policymakers in boosting confidence among businesses and consumers, despite a truce in the trade war between China and the U.S. and growth in advanced technological exports.

Yu Wening, the chief statistician at the National Bureau of Statistics, stated that the Chinese economy faces "pressures of structural adjustment" as it transitions from old to new growth drivers, adding that the international environment is also characterized by "many unstable and uncertain factors."

The central government in Beijing has long resisted calls from economists both domestically and abroad to launch large-scale stimulus packages and implement deep social security reforms to bolster morale and stimulate the economy.

Authorities have also recently intensified their focus on what they term "ni guan," or "competitive absorption," referring to excessive industrial competition that is seen as partly responsible for the production surplus leading to price reductions.

In an article published this month in Qiushi magazine, the official publication of the Central Committee of the Communist Party, President Xi Jinping urged officials to act with greater urgency to address the issue of weak domestic demand.

Xi said: "Expanding domestic demand is related to both economic stability and economic security; it is not a temporary measure but a strategic step."

Xi also renewed calls for officials and companies to exercise greater discipline in investments, following previous criticisms of excessive industrial investment, which has led to fierce price wars and unfair treatment of suppliers.

Earlier this month, the National Bureau of Statistics reported that fixed asset investment declined by 2.6% during the period from January to November compared to the previous year. In contrast, retail sales, an indicator of household demand, rose by 1.3% in November year-on-year, registering the slowest growth rate since December 2022. Both readings fell short of analysts' expectations.

The latest data from the National Bureau of Statistics highlighted some bright spots in China's manufacturing sector, with high-tech manufacturing and the automotive industry achieving annual growth rates of 10% and 7.5%, respectively.