Profits earned by China’s industrial firms slipped in June after a brief gain the previous month, fuelling concerns that a slowdown in manufacturing caused by the trade war with the United States will weigh on economic growth.
China’s industrial profits have been in decline since the second half of last year, with many firms putting off business decisions and scaling back manufacturing investment.
Economic growth in the second quarter of this year slowed to a near 30-year low.
Industrial profits in June fell 3.1 per cent year on year to 601.9 billion yuan (US$87.5 billion), according to figures released by the National Bureau of Statistics on Saturday, following a 1.1 per cent increase in May.
Profits for the first six months fell 2.4 per cent from last year to 2.98 trillion yuan (US$433 billion), compared with a 2.3 per cent drop in the year through May.
The drop in first-half profits was driven by weaker figures in the car, oil processing and steel sectors, the statistics bureau said in a statement accompanying the data.
Producer price inflation, a gauge of industrial profitability, eased to zero in June from a year earlier, rekindling worries about deflation, which could prompt the government to launch more aggressive stimulus measures.
US and Chinese negotiators will meet on Tuesday for the first time since their presidents, Donald Trump and Xi Jinping, agreed last month to revive talks in a bid to end the year-long trade war.
The governments of the world’s two largest economies have levied billions of dollars of tariffs on each other’s imports, disrupting global supply chains and shaking financial markets in the dispute over how China does business with the rest of the world.
June marked the first full month of higher US tariffs on US$200 billion worth of Chinese goods, which the US imposed in early May after trade talks broke down. Both exports and imports fell.
Saturday’s data showed that profits from the construction materials and machinery industries helped cushion the fall in overall profits in the first half of the year, likely due to higher government spending on infrastructure, which has supported some companies, such as railway equipment makers, miners and metal producers.
Sany Heavy Industry, which makes heavy construction equipment, said this month that it expected its first-half profits to rise by between 91.8 and 106.6 per cent from a year earlier.
But earnings for telecommunications and electronic equipment manufacturers, which are more vulnerable to US tariffs than other product classes, fell by 7.9 per cent in the January-June period.
The most actively traded iron ore contract on the Dalian Commodity Exchange rose 16.4 per cent in June, weighing on profits in the steel sector.
Profits at China’s state-owned industrial firms fell 8.7 per cent on an annual basis for the first six months, the statistics bureau said.
Liabilities of industrial firms rose 5.6 per cent year on year as of the end of June versus a 5.3 per cent increase by the end of May.
Private sector profits rose 6 per cent in the January-June period, slowing from the 6.6 per cent gain in the first five months.
Source: www.scmp.com