Profits at Chinese industrial firms fell sharply for the second consecutive month in November, a strong indication that reinforces concerns about a slowing recovery in the world's second-largest economy. This data highlights the ongoing structural challenges facing Beijing, primarily weak domestic demand and persistent deflationary pressures that are weighing heavily on corporate profit margins.
Details of the decline and record numbers
Official data released today by the National Bureau of Statistics revealed that industrial profits plummeted by a significant 13.1% in November compared to the same period last year. This sharp decline compounds the woes following a previous 5.5% drop in October. Despite the bleak outlook, the figures were slightly better than the more pessimistic forecasts of Bloomberg Economics, which predicted a decline of around 15%.
On an annualized basis, profits rose very slightly during the first 11 months of the year by 0.1%, a sharp slowdown compared to the 1.9% increase recorded during the period from January to October, reflecting a rapid deterioration in the business environment during the last weeks of the year.
Sector performance varied: Technology leads, mining declines
A closer look at the data reveals a clear divergence in the performance of different sectors, reflecting the structural transformation underway in the Chinese economy. Manufacturing companies saw profits increase by 5% during the first 11 months, primarily driven by the strength of advanced, high-value-added industries such as aerospace and electronics manufacturing – sectors that Beijing is counting on to lead future growth.
In contrast, mining and traditional heavy industries continued to suffer heavy losses, recording double-digit declines, while public utilities continued to achieve relatively stable growth.
Economic context and the challenges of recession
This weak performance highlights the immense pressure companies are facing due to slowing domestic demand and the deepening of what is known as "industrial deflation." China is currently facing a difficult economic equation: weak consumer spending is driving down prices, which puts pressure on corporate profits and consequently reduces their ability to invest and hire, potentially creating a vicious cycle that negatively impacts overall economic growth.
Headwinds are mounting as private investment continues to decline, consumption growth slows, and geopolitical and trade tensions with international partners continue to threaten the stability of Chinese exports despite the temporary tariff truce with the United States.
Expected impacts locally and globally
The continued erosion of profits for Chinese industrial firms is not merely a domestic issue; it has implications for the global economy. China, often described as the "world's factory," is experiencing an industrial slowdown that impacts global commodity prices and supply chains. Domestically, analysts fear that the sharpest contraction in industrial profits in November will exacerbate pressures on the labor market, potentially leading companies to cut jobs or freeze hiring, further complicating the government's efforts to stimulate domestic demand.
