China’s industrial profits fall more slowly amid crackdown on price wars
News Summary
China's industrial companies saw profits fall by 1.5% year-on-year in July, the slowest decline since May, suggesting that efforts to curb overcapacity might be easing the strain from aggressive competition, according to the National Bureau of Statistics. For the first seven months of the year, earnings contracted 1.7% year-on-year. Notably, manufacturing sector profits grew significantly faster, up 6.8% in July compared to 1.4% in June. Producers of raw materials, steelmakers, and petroleum refiners moved from losses into profits, though the mining sector continued to see declining profits. Despite government-led campaigns to curb excess competition translating into better earnings for some, profit margins remain under pressure due to further softening domestic demand. China's broader economy weakened in July, with consumer inflation falling to zero and retail sales growth cooling. Factory-gate prices have declined for 34 consecutive months, pointing to entrenched deflation that could hinder spending and weigh on corporate bottom lines.
Background
China's industrial sector has historically grappled with significant overcapacity and intense price wars, which have severely eroded corporate profitability. In response, the Chinese government has been implementing policy measures aimed at curbing excessive competition and fostering a reasonable rebound in prices. Concurrently, the broader macroeconomic environment in China exhibits signs of weakness. Persistent softening domestic demand, consumer inflation falling to zero, cooling retail sales growth, and factory-gate prices declining for 34 consecutive months all underscore entrenched deflationary pressures that pose an ongoing challenge to corporate earnings and overall economic expansion.
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