Profits at large Chinese industrial companies fell at the fastest pace in almost a decade at the start of 2019, in the latest sign of a slowdown for the world’s second-largest economy. Industrial profits at large-scale Chinese companies in January and February fell 14 percent year-on-year, figures from the National Bureau of Statistics showed, the largest drop recorded since May 2009.
Uncertainty caused by the US-China trade war, as well as a government crackdown on China’s high levels of corporate debt, led the country’s economic growth to fall to its slowest annual rate in almost three decades in 2018. Profits in the auto industry tumbled 42 percent year-on-year for January and February. The recent decline in China’s car market, the world’s largest, has spooked analysts who see it as a bellwether for weak consumer demand. Last year, vehicle sales fell for the first time in almost three decades, as the end of government tax breaks and a wider economic slowdown reduced demand.
“The market has a confidence issue now,” said Sun Lijian, professor of economics at Fudan University. “State-owned firms are more cautious about investing in big projects.” Prof Sun said that one reason for this was US-China trade frictions, adding that investment by state-owned enterprises could be “misunderstood as government subsidies”. “The other reason is that the government is trying to solve local debt issues, which has led to a slowdown in infrastructure projects particularly in smaller cities,” added Prof Sun.
TThe fall in industrial profits comes despite Beijing having introduced a series of fiscal and monetaiy stimulus measures since July in a bid to shore up growth. In a statement accompanying the figures, NBS analyst Zhu Hong attributed the profit decline partly to price drops in the autos, petroleum processing, steel and chemicals industries, which in turn hadan impact on profits. The profit decline was also partly a result of slowing industrial output and sales, Mr Zhu added.