China's Economy Trembles! Industrial Profits Collapse, Worst This Year
China’s industrial profit growth slowed in July to its weakest pace this year, expanding just 11.2% from a year earlier. Sluggish demand and a broader economic slowdown placed a heavy burden on producers in the world’s second-largest economy.
According to the National Bureau of Statistics (NBS), profits rose 17.6% during the first seven months of the year compared with the same period a year earlier. The figure clearly shows a loss of momentum when compared with the 18.7% growth recorded in the first half.
Even so, industrial corporate profitability has seen a genuine turning point, from barely positive growth last year to double-digit gains this year. The recovery has been largely underpinned by the global artificial intelligence (AI) boom, which has fuelled strong demand for computing equipment and electronics manufacturing.
The integrated circuit industry, led by memory chip and computing manufacturers, recorded profit expansion of 18.5% in the January-July period year-on-year, contributing more than 80% of total profit gains across the entire electronics sector. A more than fivefold increase in profits in optical fibre manufacturing also helped lift overall gains in advanced manufacturing.
Positive performance also came from raw material producers, which saw profits surge 55.2% by the end of July year-on-year. The petroleum processing industry also managed to turn a profit over the seven-month period as supply disruptions in the Middle East drove a spike in downstream chemical product prices.
Senior Economist at the Economist Intelligence Unit (EIU), Tianchen Xu, said that raw materials and AI supply chains remain resilient. However, industries that deal directly with consumers are struggling badly.
“The slowing growth was mainly dragged down by falling investment in property and infrastructure, evidenced by deteriorating profits in the steel and cement industries,” he explained.
The battered consumer sector is reflected in furniture manufacturing, which recorded an increasingly sharp profit decline of 58.2% in the first seven months of the year. That figure is far worse than the 52.7% recorded in June.
LSEG data highlighted that China’s producer prices in June had actually grown at the fastest pace in nearly four years after recovering from a multi-year slump since October 2022. However, this reflationary push appears to be fading because the price recovery was driven only by surging global energy costs, while domestic demand remained lagging.
Factory-gate inflation ultimately slowed to a three-month low of 3.5% in July.
The sluggish conditions are in line with China’s economic growth in the second quarter, which weakened to its slowest pace in more than three years. Activity trackers from Bank of America’s research team indicated a broad loss of growth momentum in July.
Real export growth slumped to 5.5% from 11.6% in June. This was accompanied by other indicators such as retail sales, port traffic and electricity production that continued to weaken.
Economists now expect Chinese authorities to step up targeted support to stabilise corporate profitability. Economist at Julius Baer, Sophie Altermatt, predicted that the deployment of existing fiscal resources is likely to be accelerated over the coming months, with potential additional easing measures if growth continues to deteriorate.
“This should provide some short-term stabilisation and put a floor under growth,” she said.
“The property market collapse, subdued household confidence and weak private investment are limiting the recovery,” she added, stressing that a strong cyclical economic revival remains highly unlikely in the near term.