China industrial pofits drop as Covid outbreaks slow output

BUSINESS DESK: Profits at industrial firms in China declined in the first 11 months of the year, as production slowed and factory-gate prices fell amid Covid disruptions.

Industrial profits in the January-November period fell 3.6% from a year earlier, the National Bureau of Statistics said Tuesday. That compared with a decline of 3% in the first 10 months of the year.

“Industrial production slowed down and business operation pressure increased in November due to factors such as a resurgence in Covid cases and insufficient demand,” NBS senior statistician Zhu Hong said in an accompanying statement.

The oil, coal and other fuel processing industry saw profits plummet 74.9% on year in January-November, while the ferrous metals smelting and pressing sector suffered a 94.5% slump, according to NBS data. China’s weakening demand for steel amid Covid outbreaks and a persisting property crisis has forced mills to cut output, Bloomberg reported previously.

The NBS did not release single-month data for November. Bloomberg calculations based on NBS data show industrial profits dropped 8.9% last month from a year ago.

The figures provided yet another sign of the weakness in China’s economy last month when strict movement restrictions were still in place to contain Covid outbreaks. Growth in industrial output slowed to the weakest since May in November, while factory-gate prices continued to contract.

The economy is bracing for increasing strain after the government abruptly dropped its Covid Zero policy. Soaring infections across the country are keeping people home, causing a slump in travel and economic activity.

Looking ahead, Covid case spikes will curb the recovery of industrial profits in the short term and the sector remains to be pressured by contracting demand, supply chain shocks and weakening expectations, Zhu said. “We must better coordinate Covid controls and economic and social development, ensure industrial and supply chain smoothness and take effort to expand domestic demand,” Zhu said.

Economists surveyed by Bloomberg project expansion of the world’s second-largest economy will moderate to just 3% this year, the slowest rate since the 1970s barring 2020’s pandemic plunge, before picking up to 4.9% in 2023.

Profits at foreign firms declined 7.8% in the first 11 months of the year, worsening from a 7.6% decrease in the first 10 months of 2022. Private firms, meanwhile, saw their profits sink 7.9%, while those of state-owned enterprises were up 0.5%. (Bloomberg)