China's industrial profits post double-digit gains but recovery uneven

China's November industrial profits posted double-digit gains as overall manufacturing improved, although soft demand continued to constrain business growth expectations, emboldening calls for more macro policy support.

The 29.5 percent profit rise came on top of a 2.7 percent increase in October and alongside a pickup in industrial output in November, although other sectors of the world's second-largest economy still missed forecasts.

In the first 11 months of 2023, industrial earnings shrank 4.4 percent from a year earlier, further narrowing from a 7.8 percent decline in January to October, National Bureau of Statistics (NBS) data showed on Wednesday.

Behind the November profit rise was an accelerated uptick in industrial profits and returns on investments over the month, NBS statistician Yu Weining said in an accompanying statement.

With a slew of pro-growth measures in place to buttress a patchy post-COVID recovery, Asia's biggest economy is widely expected to achieve the government's growth target of around 5 percent for this year. Industrial profits extended gains for a fourth month.

The rise in both industrial output and earnings for November reflected the continued improvement in the manufacturing sector overall, said Zhou Maohua, an analyst at China Everbright Bank.

Macro policies to bail out industrial firms, a low statistical base last year and seasonality also contributed to the uptrend, he said.

Officials are confident about more favourable economic conditions in 2024. But the economic recovery remains shaky amid persistent property sector weakness, rising deflationary pressures and soft global demand, renewing calls for stimulus.

While the overall manufacturing sector has shown improvement, not all segments are on the mend yet.

The unevenness across industrial sectors remains evident, with high-tech and equipment manufacturers seeing rapid profit growth while property-related sectors are still squeezed by shrinking profits, Zhou said.

The analyst said he hoped to see an "optimised" mix of macro policies to prop up growth.

Citing intensified competition and weaker-than-expected downstream demand, Chinese chemicals producer Do-Fluoride New Materials Co expected 2023 net profit to fall by between 68.17 percent to 71.25 percent.

There is now little chance industrial profits return to growth for the whole of 2023 with China's producers' prices expected to remain under pressure for the foreseeable future, said Zheng Houcheng, chief macroeconomist at Yingda Securities.

State-owned firms saw their earnings down 6.2 percent in the first 11 months, foreign firms reported an 8.7 percent fall while private-sector companies posted a 1.6 percent gain, according to a breakdown of the data.

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.80 million) from their main operations.

($1 = 7.1339 Chinese yuan)