Gross profit index of major industrial enterprises above 2,000 yuan
Improvement rather than September’s 27.1% drop… more stimulus package needed
▲Monthly trend of increase/decrease in total profits of major industrial companies in China. Minus(-)10% in October. Source: Bloomberg
The total profits of China’s major industrial enterprises in October decreased by 10% compared to the same period last year. Although it has improved compared to the previous month, the U.S. CNBC broadcast evaluated on the 27th (local time) that China’s economic stimulus package was not fully effective.
China’s major industrial companies are those with annual sales of more than 20 million yuan (approximately 3.9 billion won), and their total profits serve as a standard for evaluating the financial soundness of China’s factories, mines, and utility sectors.
China’s National Bureau of Statistics said in a statement on the 27th that the total profits of major industrial enterprises in October fell 10% compared to a year ago. It was an improvement compared to September (27.1%), which had the largest decline since March 2020.
The total profits of major industrial enterprises from January to October were 5.868 trillion yuan, a decrease of 4.3% compared to the same period last year. Total profits from January to September decreased by 3.5% during the same period.
“Companies in most industrial sectors, especially equipment and high-tech manufacturing industries, showed improved profitability compared to the previous month thanks to the economic stimulus package,” explained Yu Weining, a statistician at the National Bureau of Statistics.
On the other hand, Eugene Xiao, head of China stock strategy at Macquarie Capital, said, “It is a recovery coupled with one-time demand that occurred as local exporters rushed to ship to the United States due to the tariff announcement.”
Profits of major Chinese industrial companies increased by 10.2% from January to February this year, turning upward for the first time in 18 months, raising expectations for economic recovery.
However, the outlook darkened as profits at major industrial companies plummeted by 17.8% in August compared to the same period last year, and in September recorded the largest drop since March 2020.
However, Director Xiao said, “Although it is insignificant, the decline in corporate profits has slowed, showing that China’s economic situation is gradually stabilizing.” He added, “Additional financial support from the Chinese authorities next year will be able to further improve corporate performance.” “I expect that,” he predicted.
In detail, the total profits of major state-owned industrial enterprises (January to October) decreased by 8.2% compared to the same period last year. Private companies decreased by 1.3%. Profits of foreign companies, including those invested in Hong Kong, Macao, and Taiwan, increased by 0.9%.
Earlier this month, Chinese authorities announced a plan to invest 10 trillion yuan over five years to solve local government debt problems. CNBC pointed out that although China’s recent economic stimulus package is having some effect, it is not enough to offset ongoing deflationary pressures.
