China's Industrial Profits Stabilize, But 2024 Set for Decades-Worst Performance

China's industrial profits narrowed their decline in November, signaling a potential stabilization, but the full-year performance is expected to be the worst in over two decades, as reported by Reuters. The world's second-largest economy continues to grapple with sluggish domestic consumption and uncertainty surrounding global trade.

Official data released Friday by the National Bureau of Statistics (NBS) revealed a 7.3% year-on-year drop in industrial profits for November, an improvement from the 10% decline observed in October. This slight improvement is attributed to the gradual impact of recent government stimulus measures, according to Zhou Maohua, a macroeconomic researcher at China Everbright Bank, as quoted by Reuters.

The improvement in November's profit figures aligns with a slowdown in factory-gate price deflation. The producer price index (PPI) fell by 2.5% year-on-year, down from October's 2.9% decline.

Despite these positive signs, China's industrial profits recorded a significant 4.7% decline in the first eleven months of 2024, deepening the 4.3% slide observed in the January-October period. This persistent weakness reflects subdued private demand within the Chinese economy.

The World Bank, in a slight upward revision of its forecast, now expects China's economy to grow by 4.9% in 2024, up from its previous estimate of 4.8%. However, the projected full-year decline in industrial profits, exceeding 4%, marks the most substantial percentage drop since 2011. When considering a broader range of companies under a previous methodology, this year's decline is anticipated to be the worst since at least 2000.

A recent wave of economic indicators paints a mixed picture. While industrial output accelerated in November, new home prices experienced their slowest decline in 17 months, highlighting the uneven nature of the economic recovery.

Zhou attributes the uneven recovery to insufficient demand, citing the struggles faced by the real estate sector and related industries as key indicators of economic weakness.

In response to these challenges, Chinese leaders have pledged to implement a range of economic stabilization measures, including increased deficit spending, debt issuance, and monetary easing. The government is also prioritizing direct fiscal support for consumers and social security enhancement. These efforts include a record $411 billion in special treasury bonds to be issued next year.

A breakdown of the NBS data reveals that state-owned firms saw an 8.4% decline in profits over the first eleven months, while foreign firms experienced a more modest 0.8% drop. Private companies recorded a 1% decline in the same period.

The NBS data covers companies with annual revenues exceeding 20 million yuan ($2.7 million) from their primary operations.