Industrial profits in China fell far more than expected last month, adding to the country’s many economic woes.
China’s industrial profits plummeted in August by the largest amount in over a year as part of a trend of economic downturn for the world’s second-largest economy. In July, industrial profits rose at their fastest pace in the past five months.
Industrial profits in August plunged by 17.8% year-on-year, the worst performance since April 2023 when profits fell by 18.2%.
With August’s performance, overall industrial profits for 2024 are now in recession territory as they had grown only by 3.6% by July.
The National Bureau of Statistics, the organization that published the report on Friday, said the cause for the decline was the large base in August 2023, when profits rose by 17%.
But industrial profits in China have been declining for years, and have never rebounded the COVID-19 pandemic. “There is a long-running decline in China’s industrial profits which can only get worse with Beijing failing to address its overcapacity problem,” Shehzad Qazi, chief operating officer at China Beige Book, a U.S.-based research firm, told CNBC.
The fundamental problem in the Chinese economy is weak domestic demand. COVID and the subsequent real estate crisis have depressed Chinese consumers, while industrial production remained at pre-pandemic levels. This caused an overcapacity of products that Chinese firms find increasingly difficult to sell, especially as foreign countries raised trade barriers against Beijing.
Direct economic stimuli
The industrial profits report was released a few hours after the People’s Bank of China’s decision to artificially stimulate the economy.
The PBOC announced plans to issue $284 billion in sovereign debt bonds. The proceeds will go to fiscal relief for China’s population, as well as welfare checks for families with more than one child.
China’s central bank also slashed the legal amount of liquidity banks need to hold in their reserves. This will hopefully increase lending and liquidity circulating into the economy.
Analysts and experts have called for fiscal stimuli for years, noting it was the only way to augment Chinese consumer confidence.
Earlier this year, the PBOC also announced a stimulus package to purchase unsold properties in an effort to ease the nationwide real estate crisis. The $41 billion package, however, could barely scratch the surface of the $4 trillion in unsold properties across the country.
Real estate investments fell by 10.2% in August, at the same pace as July. Urban unemployment rose to 5.3% from 5.2% in July, while youth unemployment rose to 18.8% in August.
