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Economic Gloom Is Intensified By China's Declining Industrial Profitability

Economic Gloom Is Intensified By China's Declining Industrial Profitability
As weaker demand pinched margins, annual profits for China's industrial firms continued a double-digit slide in the first five months, bolstering hopes for additional governmental help to speed up the sluggish post-COVID economic recovery.
Adding to the 20.6% year-over-year decline in earnings from January through April, the 18.8% decline in profits in May showed that the economy was losing momentum in several areas, including retail sales, exports, and real estate investment as the young unemployment rate reached a new high of 20.8%.
According to figures from the National Bureau of Statistics (NBS) released on Wednesday, industrial earnings fell 12.6% from a year earlier in just last month. In April, profits decreased by 18.2%.
"The still slow recovery in industrial profits pointed to sustained difficulties facing business operations," said Wu Chaoming, deputy director of the Chasing International Economic Institute.
According to Wu, the need for greater policy measures to support businesses is made stronger by the corporate problems.
Auto manufacturers saw their profit double year over year in May, providing some hope for a comeback, even though the increase was partially due to last year's bad performance when COVID limits had a significant negative impact on sales.
"As the external environment becomes increasingly complicated and severe, domestic demand still appears to be insufficient, weighing on further recovery in industrial profits," said NBS statistician Sun Xiao in an accompanying statement, noting that the foundation for a revival in industrial profits is still not solid.
According to a breakdown of the statistics, private-sector enterprises reported a 21.3% fall in earnings between January and May, compared to a 13.6% decline for foreign corporations.
Of the 41 major industrial sectors, profits fell for 24 of them, with the petroleum, coal, and fuel processing sector reporting the worst decline at 92.8%.
In recent weeks, S&P Global, Goldman Sachs, and other international agencies have lowered their China growth projections for this year due to the uneven recovery in the second-largest economy in the world.
Many economists anticipate that policymakers will implement additional stabilisation measures as the economy is under pressure at home and in its most important international markets.
China on week dropped its important lending criteria for the first time in ten months to support the sputtering recovery. Additionally, a 520 billion yuan package of tax breaks for new-energy vehicle purchases through the end of 2027 was presented.
China will implement more effective policy measures to increase domestic demand, according to Premier Li Qiang, who delivered the keynote address at the Summer Davos Forum on Tuesday in Tianjin.
Li predicted that China's economic growth in the second quarter would be stronger than in the first, and that the country would likely hit its 5% growth objective for that year.
Although there are ongoing worries about local government debt and other longer-term dangers, the government has chosen to approach economic recovery cautiously.
Industrial profit figures apply to companies with core operations that generate at least 20 million yuan ($2.77 million) in yearly sales.

Christopher J. Mitchell

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