China's industrial profits drop 2.1% in first half of 2022

In January-August, BEIJING profits at China's industrial firms shrank at a faster pace as strict COVID restrictions and a deepening property slump weighed on domestic demand, adding to uncertainty about the faltering economy.

Industrial profits fell by 2.1 per cent in the first eight months of 2022 from a year earlier in the year, after a 1.1 per cent drop in January-July, according to data from the National Bureau of Statistics NBS released on Tuesday.

The Bureau did not report standalone figures for August and July.

China's economy showed surprising resilience in August, with faster than expected growth in factory output and retail sales, but a property crisis and COVID lockdowns weighed on the outlook.

Bruce Pang, chief economist at Jones Lang Lasalle said the economic recovery is facing more uncertainties, as the momentum was disturbed by a variety of unexpected and external factors such as extreme hot weather, regional power restrictions and COVID flare-ups.

25 out of 41 major industrial sectors saw their profits decline from January to August.

Profit growth in the mining sector slowed to 88.1 per cent in January-August from a 105.3 per cent expansion in the first seven months due to weaker commodity prices.

The manufacturing sector reported further declines in profits, dropping 13.4 per cent in the first eight months, moving up from a 12.6 per cent fall in January-July.

In a separate statement, Zhu Hong, senior NBS statistician, said that China will accelerate the implementation of policies to expand demand and promote a sustainable and stable recovery of the industrial economy.

Analysts view China's current zero-COVID policy as a major constraint on the economy and say there is little chance that Beijing will relax its zero-COVID policy before the Communist Party Congress in October.

Weaker exports and property market mean that the remaining source of growth support is consumption, in our view. In a research note, Morgan Stanley said that a shift in China's COVID management approach is needed to unleash that.

We expect policymakers to take important steps in the coming months that would allow a reopening from spring 2023. In late August, cities from Chengdu and Dalian rolled out COVID curbs aimed at stamping out new outbreaks.

China's industrial output increased by 4.2 per cent from a year earlier in August, a rebound from a 3.8 per cent rise in July.

Liabilities at industrial firms rose by 10.0 per cent from a year earlier in August, slightly slower than the 10.5 per cent growth in July.

One bright spot in the bleak set of figures was seen in the automobile sector, which has enjoyed tax cuts and saw profits double in August.

The power industry's profits increased by 1.58 times year-on-year in August, due to high demand for electricity due to hot weather.

In August, China's southwestern Sichuan province and Chongqing city rationed power used for industrial production, as drought curtailed hydropower generation and residents ramped up electricity usage during the crippling heat waves.

China's cabinet in August of this year offered a lot of stimulus to revive the faltering economy, including raising the quota on policy financing tools by 300 billion yuan.

Industrial profits data covers large firms with annual revenues above 20 million yuan from their main operations.