China’s industrial profits reverse slump after deflation eases

BEIJING - China’s industrial enterprises saw their earnings rise for the first time in three months after producer deflation showed signs of easing.

Industrial profits climbed 5.3 per cent in December from a year earlier, compared with a plunge of more than 13 per cent in November, according to data released on Jan 27 by the National Bureau of Statistics. Bloomberg Economics had expected a drop of about 11 per cent in December. 

Industrial earnings provide a key measure of the financial health of factories, mines and utilities that can affect their investment decisions in the months to come. For the full year, profits rose for the first time since 2021 with a gain of 0.6 per cent. 

Profit margins have been under pressure as domestic demand sagged despite government efforts to curb excess competition and cut capacity. The world’s second-largest economy lost more momentum in the last quarter, even as industrial production held up well thanks to booming exports. 

China’s industry, which is dominated by manufacturing, has suffered from domestic deflation that is eating away at income and profits. Producer prices have declined every month for over three years but had their smallest decrease in over a year in December.  

Deflationary pressures have been present since the end of the Covid-19 pandemic as a consequence of a prolonged slump in housing and weak consumer demand. A glut of production capacity in some industries has also led to oversupply, pushing firms to cut prices to survive. BLOOMBERG