China industrial profit continued to decline in September due to expanding deflationary pressure, according to data released by China’s National Bureau of Statistics on October 27.

Profits for large-scale industrial enterprises fell by 27.1% year-on-year in September, down 9.3 percentage points from the previous month’s decline of 17.8%. Cumulatively, profits for the first nine months of the year dropped by 3.5%, compared to a 3.0% decrease in the first eight months.

High-tech manufacturing remained the key driver of industrial profits, with cumulative growth of 6.3%, contributing 1.1 percentage points to overall growth. However, this was a decline from the 10.6% cumulative growth reported for January to August.

Yu Weining, a statistician from the National Bureau of Statistics, attributed the decline to weak domestic demand and falling industrial product prices. Recent figures show that China’s core CPI rose by just 0.1% year-on-year in September, down 0.2 percentage points from the previous month, while the PPI fell by 2.8%, marking 24 consecutive months of decline, reflecting persistent weakness in domestic demand.

With trade barriers expected to increase in the future, China’s manufacturing sector may struggle to absorb its excess capacity through exports and domestic demand, further compressing corporate profits and intensifying deflationary pressures. This could make it even more difficult for China to achieve its 5% annual economic growth target.

From November 4 to November 8, the Chinese government will convene the Standing Committee of the National People’s Congress in Beijing, where the market will be watching for any new stimulus measures.

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China’s industrial enterprises’ profits saw a significant decline in August, according to data released by the National Bureau of Statistics on September 27. In August, industrial profits fell by 17.8% year-over-year, a sharp decline from July’s 4.1% increase, marking a 21.9 percentage point decrease and the largest drop so far this year, ending two consecutive months of accelerating growth. From January to August, the cumulative annual growth rate of profits for industrial enterprises above a designated size was 0.5%, down from 3.6% in the January-to-July period, representing a 3.1 percentage point decrease.

National Bureau of Statistics industrial statistics expert Yu Weining stated that the sharp decline was mainly driven by insufficient domestic demand and the impact of extreme weather conditions. High-tech manufacturing, a key profit driver, also experienced a decline in August, with cumulative growth for January to August at 10.9%, down from 12.8% in the January-July period. Additionally, profits in sectors such as mining and consumer goods manufacturing continued to shrink, further exacerbating the downward pressure on overall industrial profits.

Facing Economic Growth Challenges, PBOC Unveils a Series of Solutions：

In response to a series of weak economic data, the People’s Bank of China (PBOC) introduced a range of easing policies on September 24, targeting interest rates, real estate, and the stock market.

Interest rate: The PBOC lowered the reserve requirement ratio for financial institutions by 0.5 percentage points, bringing the weighted average reserve ratio down from 7% to 6.6%. The central bank indicated it would continue to monitor market conditions and could reduce the ratio further by 0.25 to 0.5 percentage points if necessary. Additionally, the PBOC’s main policy rate, the 7-day reverse repurchase rate, will be reduced from 1.7% to 1.5% to guide market lending rates (LPR) lower.

Real Estate: The PBOC will direct commercial banks to lower mortgage rates by 0.5 percentage points and reduce the down payment ratio for second homes from 25% to 15%. Furthermore, for the 300-billion-yuan in affordable housing re-lending established in May, the PBOC will increase its support ratio from 60% to 100%.

Stock Market: The PBOC will allow securities, funds, and Insurance firm to pledge assets to the central bank in exchange for liquidity. Additionally, the PBOC has introduced a share repurchase and equity increase loan facility to provide listed companies with funding for share buybacks and equity increases.

Overall, as global demand weakens and exports hard to sustain the national economy, the PBOC implemented a more aggressive easing policy just days after the U.S. Federal Reserve’s rate cut. This move aims to mitigate the risks of RMB depreciation and capital outflows, while slightly alleviating the pressure to meet economic growth targets.

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China’s industrial profits continued to rise in July, as reported on August 27. According to  the National Bureau of Statistics, the cumulative year-on-year growth rate of profits for large-scale industrial enterprises reached 3.6% from January to July, an increase of 0.1% compared to the January to June period. The year-on-year growth rate for July alone was 4.1%, up 0.5 percentage points from June, marking the second consecutive month of accelerated growth.

This recovery was primarily driven by the high-tech manufacturing sector, which saw a profit growth rate of 12.8%, contributing over 60% to the overall growth. This reflects the Chinese government’s support for high-tech, high-efficiency, and high-quality products.

However, in a recent statement, Yu Wei Ning, an industrial statistician at the National Bureau of Statistics, pointed out that domestic consumer demand remains weak, which has compressed the profits of some industrial enterprises. This situation is also reflected in the July Producer Price Index (PPI), which declined by 0.8%, marking the 22nd consecutive month of negative growth in PPI.

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