China’s industrial profit growth slowed for 6th straight month in August

Growth of China’s industrial profits slowed in August for a sixth consecutive month as companies struggled with high commodity prices, Covid-19 flare-ups and shortages in some key materials and components.

Industrial profits grew by 10.1 per cent last month from a year earlier to 680.3 billion yuan, easing from a 16.4 per cent gain in July, data from China’s statistics bureau showed on Tuesday.

Momentum in the world’s second-biggest economy has weakened in recent months with its vast manufacturing sector buffeted by gathering headwinds.

Industrial production rose in August at its slackest pace since July 2020, weighed by domestic Covid-19 outbreaks, high raw material prices, a campaign by Beijing to cut carbon emissions and a persistent shortage in parts such as semiconductors.

For the January-August period, industrial firms’ profits rose 49.5 per cent year on year to 5.61 trillion yuan, slowing from a 57.3 per cent increase in the first seven months of 2021.

“A sustained and stable recovery in corporate profits is facing more challenges,” said Zhu Hong, senior statistician at the statistics bureau, in a statement.

“The epidemic is still spreading in some areas, overall prices of bulk commodities are high, the cost of international logistics is elevated, and the shortage of chips is pushing up corporate costs.”

High commodity prices in recent months have hurt the bottom-lines of many medium-sized and downstream factories. China last week vowed to step up policy coordination to counter challenges from high commodity prices.

To cool prices, China will further auction industrial metals from its state stockpiles next month in a rare release of inventories. Before this year, Beijing had not sold state metal reserves for more than a decade.

Earlier this month, China also released crude oil from its strategic reserves for the first time.

But further dimming the outlook for manufacturers, China has tightened controls on power usage by energy-intensive firms to meet climate goals, hurting production. The power shortages have also triggered electricity cuts across regions this month, clouding the economic outlook.

“We expect industrial profit growth to fall further in coming months amid a notable growth slowdown in the second half of the year due to the recurring Covid-19 waves and Beijing’s zero-Covid strategy, likely slowing exports, and Beijing’s enforcement of property sector tightening and green measures,” Nomura analysts wrote in a note.

“We believe the slowdown could be even sharper in September due to severe power outages in many regions.”

Liabilities at industrial firms rose 8.4 per cent on an annual basis at the end of August, up from 8.2 per cent growth as of the end of July.

The industrial profit data covers large firms with annual revenues of over 20 million yuan ($3 million) from their main operations.