China industrial profits slump, revises GDP growth up to 8.4%

Profits at China’s industrial firms contracted further in the January-November period as strict COVID 19-related curbs disrupted factory activity and supply chains, but analysts foresaw brighter long-term economic prospects after a U-turn in COVID policy.

Industrial profits fell 3.6 per cent in January-November from a year earlier to 7.7 trillion yuan ($1.11 trillion), according to data released by the National Bureau of Statistics (NBS) on Tuesday. That compares with a 3.0 per cent drop for January-October. No standalone data was released for November.

Meanwhile China has revised up its estimate of 2021 gross domestic product (GDP) growth to 8.4 per cent from 8.1 per cent previously, the National Bureau of Statistics said on Tuesday.

China routinely revises its annual GDP data.

The size of GDP was also revised, to 114.92 trillion yuan ($16.51 trillion) from 114.37 trillion yuan, the statistics bureau said in a statement on its website.

Final data from the bureau shows the services sector, accounting for 53 per cent of China’s GDP, was 8.5 per cent larger in 2021 than a year earlier. In the bureau’s initial estimates, the sector had expanded 8.2 per cent.

The secondary sector - manufacturing and construction, which accounted for 39 per cent of GDP - grew 8.7 per cent in 2021. That compared with the bureau’s initial estimate of an 8.2 per cent increase.

The economy, the world’s second-largest, grew 3 per cent in the first nine months of 2022.

The World Bank has cut its forecast for China’s 2022 economic growth in 2022 to 2.7 per cent, well below the official target of around 5.5 per cent.

Zhu Hong, a senior NBS statistician, highlighted a rebound in COVID outbreaks and lacklustre demand in November that curbed industrial production and placed increasing pressure on Chinese businesses, according to a statement from the bureau.

Analysts have noted a squeeze in profits both from anti-virus curbs in big manufacturing hubs such as Guangzhou and Zhengzhou, and from the persistent weight of a protracted property crisis and slowing exports.

But they expect a robust recovery could kick in next year as the economy reopens, although for the near term there was likely to be a further slump as the removal of restrictions brings a sharp rise in infections.

Last month, industrial output rose only 2.2 per cent from a year earlier, missing expectations for a 3.6 per cent gain in a Reuters poll and slowing significantly from the 5.0 per cent growth seen in October.

Despite Beijing ditching some of the world’s toughest anti-virus restrictions in early December, and on Monday announcing it would end quarantine requirements for inbound travellers from Jan.8, the economy is still expected to struggle over the winter months as much of the population becomes infected and unable to work while recovering.

Industrial profits could fall further in December with many cities facing a surge in COVID infections, said Hao Zhou, chief economist at GTJAI.

He added that strong improvement is highly likely from next January, however, as economic activity returns to normal, and called for robust and targeted policies to help revive private-sector firms in the year ahead.

JP Morgan analysts said China’s domestic reopening, which came earlier and faster than expected, would mean a shorter period of transitional pain in the first quarter of 2023, followed by an above-trend sustained recovery from the second quarter.

Earlier this month, they trimmed their forecast for China’s year-on-year GDP growth rate for the current quarter, to 2.2 per cent from 2.7 per cent, but raised their full-year growth forecast for next year, to 4.3 per cent from 4 per cent.

For January-November, profits at private-sector firms shrank 7.9 per cent, a slight improvement from the 8.1 per cent fall in the first 10 months.

Profits fell for 21 of 41 major industrial sectors, with the ferrous metals smelting and pressing industry suffering the steepest decline, at 94.5 per cent. That compares with a 92.7 per cent fall for the first 10 months.

Profits for manufacturers were down 13.4 per cent in the first 11 months, matching the fall in January-October.