Industrial profits in China drop, prompting calls for economic reform.

Reuters stated that
China’s industrial firms have seen a steady decrease in annual profits, adding
weight to the argument that the country needs more policy support as it
attempts to bounce back economically from the COVID crisis. A year-over-year
drop of 18.8 percent in profits was seen throughout the first five months of
the year, on top of the 20.6 percent drop seen from January through April.

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The National Bureau of
Statistics (NBS) provided these numbers to emphasize the overall weakness of
the economy, which is shown in the decline of retail sales, exports, and
investment in property. The youth unemployment rate also hit a worrying high of
20.8%.

According to Reuters,
Wu Chaoming, deputy director of the Chasing International Economic Institute,
said that more governmental measures are needed to help suffering enterprises
because of the slow rebound in industrial profitability. The situation is
especially alarming considering that industrial profits fell by 12.6%
year-over-year in May and by 18.2% month-over-month in April.

Some sectors have seen
improvements, such as the automotive industry, which saw a doubling of profits
year over year in May. However, it is important to highlight that this growth
is at least in part owing to the poor performance of the automotive industry
during the restrictions imposed due to the epidemic the previous year.

According to Reuters,
NBS statistician Sun Xiao is concerned that the external environment is
becoming more complex and tough and that this, along with weak domestic
demand, will prevent a recovery in industrial profitability. Sun stressed the
importance of a stronger base to sustain the recovery. A breakdown of the data
shows that between January and May of this year, profits fell by 13.6% at
international corporations and by 21.3% at private companies.

24 of 41 key industrial
sectors saw earnings declines. The petroleum, coal, and fuel processing
business saw the worst drop in profits, 92.8 percent. These results initially
hurt Chinese stock markets on Wednesday morning. During the afternoon trade, the
main indexes recovered, resulting in a mixed performance.

S&P Global and
Goldman Sachs have lowered their growth predictions for China due to its uneven
recovery. Due to domestic pressures and weakening demand in important
international markets, economists expect policymakers to take further measures
to stabilise the economy. Due to the failing resurgence, China cut its key
lending benchmark for the first time in ten months. New-energy vehicle purchase
tax incentives worth 520 billion Yuan were announced in 2027.

Premier Li Qiang said
at the Summer Davos Forum in Tianjin that China’s second-quarter economic
growth would exceed the first quarter and that the government would meet its
2023 growth objective of about 5%.

However, local
government debt and other long-term issues keep the Chinese government from
recovering the economy. Reuters said that industrial profit estimates include
enterprises with principal activities that generate at least 20 million Yuan
($2.77 million) annually.

In mid-July, China’s
second-quarter GDP growth figures will reveal how it performed economically and
the success of policy measures to promote its recovery.

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