China's Industrial Profits Signal Stabilizing Economy Amid Policy Boost

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China’s Industrial Profits Signal Stabilizing Economy Amid Policy Boost

China’s industrial sector continued its profit surge for the second consecutive month in September, indicating a promising stabilization of the economy alongside the implementation of supportive policy measures by the authorities.

The 11.9% year-on-year increase follows an unexpected 17.2% upswing in August, paralleling robust industrial and consumption activity throughout September.

Data from the National Bureau of Statistics (NBS) revealed that profits for the first nine months contracted by 9% compared to the same period the previous year, displaying an improvement from the 11.7% decline in the initial eight months. NBS statistician Yu Weining stated that industrial profits rebounded gradually, registering a 7.7% growth in the July-September quarter after consecutive contractions in the preceding two quarters.

Analyst Zhou Maohua from China Everbright Bank attributed the September progress to enhanced domestic industrial operations and a sustained recovery in market demand. He noted that the year-on-year growth slowdown was primarily due to a high base effect from the previous year. Zhou further observed that some industrial entities resorted to price reductions to bolster sales, exerting downward pressure on overall industrial revenues and profits.

Anticipating a continued upturn in industrial profits, Zhou suggested that the forthcoming months would witness the sustained effects of recent macroeconomic stimulus policies. The CSI300 Index in China responded positively, rising 0.6% after an initial dip during the morning session.

Recent data consistently indicates a stabilizing trend in the world’s second-largest economy, which experienced a faster-than-anticipated expansion in the third quarter, following a period of sluggish growth subsequent to a brief post-COVID recovery.

While acknowledging the efficacy of recent policy interventions in stabilizing the economy, analysts remain cautious, citing persistent vulnerabilities in the property sector as a major impediment to sustained growth and corporate earnings. Chinese battery titan CATL recently reported a notable deceleration in profit growth during the third quarter, marking its weakest performance since the onset of the previous year, attributed to softening demand and intense market competition.

In response to the third-quarter gross domestic product data, China’s central bank governor Pan Gongsheng pledged to bolster the economic revival, emphasizing a strategy centered on expanding domestic demand while managing financial risks.

A breakdown of the NBS data showcased that state-owned firms witnessed an 11.5% decline in earnings over the first nine months, while foreign firms experienced a 10.5% decrease, and private-sector companies recorded a 3.2% slide. It is important to note that the industrial profit figures encompass firms with annual revenues of at least 20 million yuan ($2.73 million) from their primary operations.

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