China’s Industrial Profits Fell For the First Time in Years

On Monday, Chinese officials released the information. According to the information prepared by the National Bureau of Statistics, industrial profits fell 3.3% on an annual basis to 6.1996 trillion yuan ($897.96 billion) in 2019.

For example, in the January-November period, profits declined 2.1.%. It is important to mention that it was the first full-year decline in four years. In 2015, industrial profits fell by 2.3%.

Also, economists expect that coronavirus is going to affect economic growth during the first six months of 2020.

The virus coincided with the Lunar new year. Usually, during this time, Chinese citizens are traveling across the country to spend time with their families. However, this year was different as Chinese authorities-imposed travel restrictions in certain areas to contain this virus.

Coronavirus killed more than 300 people in China and infected over 17,000 patients during the past several weeks. Based on the information, this virus could drag China’s economic growth to 5% or even lower in the first quarter of 2020.

As a reminder, in 2019, China’s economic growth fell to the lowest point in nearly 30 years. The trade war with the U.S. had a serious impact on the local economy.

The Chinese government has to tackle this issue as soon as possible. Analysts expect Beijing to help the economy through credit support; also government may step up liquidity. Nevertheless, such measures may prove insufficient as far as the virus continues to affect domestic demand.

In December 2019, industrial profits declined by 6.3% in comparison with the same period in 2018. Profits fell 588.39 billion yuan ($585.22 billion).

Slowing sales and the price of raw material, as well as labor costs, influenced the industrial profits.

In 2019, profits at state-owned industrial companies declined by 12.0%. At the same time, private-sector profits rose by 2.2%.

Industrial profits and manufacturing activity

As mentioned above, industrial profits fell in 2019. The private manufacturing PMI (Purchasing Managers’ Indexes) reached 51.3 for January.

The Markit/Caixin manufacturing PMI-measure of factory activity was 51.5 in December.

It is worth mentioning that PMI readings above 50 indicate expansion, whereas when the index is below 50, that level indicates contraction.

Last month, China’s manufacturing activity expanded at the slowest pace since August 2019. On Friday, China’s National Bureau of Statistics stated that official manufacturing PMI came in at 50.0 for January.

According to the bureau, this result does not fully reflect the influence of ongoing coronavirus outbreak, as the survey was conducted before January 20.

Slow demand had a dramatic impact on manufacturing activity. The total number of new orders fell to the lowest point since September 2019.

There is a difference between the official PMI and private surveys. The official PMI survey is mostly based on data from big businesses and state-owned enterprises. The Private manufacturing PMI survey by Markit/Caixin includes a bigger mix of small and medium-sized companies.

The problems connected with industrial profits, as well as manufacturing activity, show that the local economy is struggling to deal with internal and external factors. It will take time to asses the damage caused by the virus outbreak.