China Industrial Profits Extend Drop as Deflation Takes Tol

Profits at China’s industrial firms in September declined at a faster pace than a month earlier, as deflationary pressures sap the strength of corporate finances.

Last month’s industrial profits at large Chinese companies fell 27.1% from a year earlier, after a 17.8% plunge in August, the National Bureau of Statistics said in a statement Sunday. Profits decreased 3.5% in the first nine months from the same period in 2023.

The data was “affected by factors such as high base in the same period last year” the bureau said in a statement.

Industrial profits provide a key measure of the financial health of factories, mines and utilities that can affect their investment decisions in the months to come. Weaker profits became emblematic of the challenges facing China’s $18 trillion economy, prompting measures such as interest-rate cuts since late September.

The country’s top legislative body will hold a highly anticipated session in Beijing on Nov. 4 to 8, as investors watch for any approval of further fiscal stimulus to revive growth. 

Economists expect the meeting to confirm a plan to refinance local governments’ debt and issuance of sovereign bonds to inject capital into banks. Investors have been on the lookout for fresh stimulus in the form of greater public borrowing and spending, but opinions differ over whether it’ll materialize this year. 

Deepening deflation in producer prices was likely a drag on company earnings despite faster growth in industrial output, Bloomberg Economics said before the release. Factory-gate prices extended declines for a 24th straight month in September, with the recent drop accelerating, reflecting weak domestic demand.

China’s economic expansion slowed in the third quarter despite tentative signs of improvement in September, including a better industrial performance and increased consumption. The economy expanded 4.6% in the July-to-September period from a year earlier, the slowest pace since March 2023.

The growth of the high-technology sector has offered signs of hope for the economy, with profit for the industry’s manufacturers climbing 6.3% in the first nine months, according to the statistics bureau.