Monthly figure hard to sustain, but more growth stimulus underway: analysts
Published: Dec 27, 2019 07:18 PM

Workers operate a robot on a production line in a glass factory in Qinhuangdao, North China's Hebei Province. In line with the country's massive industrial upgrading, Qinhuangdao has been investing heavily in modernizing its manufacturing sector. The project at the glass factory will cost up to 510 million yuan ($72.79 million). Photo: CNS Photo

Major Chinese industrial firms recorded a remarkable recovery of profits in November after a decline of three consecutive months, as production, sales and prices improved significantly, largely boosted by robust stimulating measures to stabilize the economic growth, official data showed on Friday.

While this unexpected turnaround in industrial profit might be hard to sustain as downward pressure on the world's second-largest economy lingers amid a deep industrial transformation, the widely expected relief policies, including cut to the reserve requirement ratio (RRR), will offer support to ensure the growth remains within the targeted range, analysts noted.

Industrial profits grew by 5.4 percent year-on-year to 593.9 billion yuan ($84.9 billion) in November, compared with a 9.9 percent decline in October, according to the National Bureau of Statistics (NBS). In the first eleven months of the year, profits dropped by 2.1 percent year-on-year, recovering from a 4.9 percent fall in the January-October period.

"This marks a huge improvement in not just the industrial sector but also in terms of the broader economy," Cao Heping, an economics professor at the Peking University in Beijing, told the Global Times on Friday. "This can be viewed as another sign of the economic growth to remain steady in the last quarter of the year."

In a statement on Friday, Zhu Hong, a senior official at the NBS, attributed the rebound in industrial profits to quickened production and sales as well as improved corporate profitability.

China's industrial output expanded by 6.2 percent year-on-year in November, compared with a 4.7 percent growth in October, earlier data from the NBS showed. Revenue growth in major industrial firms also picked up 3.8 percentage points from October to 5.3 percent year-on-year in November, while decline in the producer price index, a gauge of corporate profitability, shrank by 0.2 percentage points.

A slew of measures, including a nearly 2 trillion yuan ($285.7 billion) cut in taxes and administrative fees for businesses, also lifted industrial profits in November, Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times on Friday.

Apart from tax and fee cuts, the People's Bank of China (PBC), the central bank, also injected a total of 156.5 billion yuan liquidity into the market through various instruments such as the medium-term lending facility in November, according to some estimates.

A young man works at a factory in Qinzhou high-tech zone in Qinzhou City, south China's Guangxi Zhuang Autonomous Region, May 29, 2019. Starting from 2017, several workshops have been set up in the Qinzhou high-tech zone to create jobs for those who lived in the remote impoverished areas. (Xinhua/Zhang Ailin)

Lingering pressure  

However, the dramatic rebound in industrial profits could be hard to sustain given the overall downward pressure that continues to hover over the Chinese economy, according to Liu Xuezhi, a senior economist at the Bank of Communications. "Despite the improvement, we don't see a sustainable trend forming up going forward," he told the Global Times on Friday.

Zhu, the NBS official, also cautioned that there is still uncertainty for industrial profits. "We should also see that the downward pressure on the economy is still relatively huge," he said in the statement.

In line with such cautionary sentiment over November's industrial profit, Chinese stock markets closed lower on Friday, with the Shanghai Composite Index falling by 0.08 percent and the smaller Shenzhen Component Index losing 0.68 percent.

Given the lingering downward pressure and reported difficulties to raise funds for small and medium-sized firms, it can be anticipated that the PBC might announce another cut to the RRR to boost liquidity, analysts predicted.

"I think it is certain that the central bank will cut the RRR. It's just a matter of time," Cao said, adding that given all the policy tools in place, China will maintain its economic growth in the targeted range of between 6-6.5 percent for the year. 

The improving signs of the Chinese economy also came at a time when China and the US are working toward a phase one trade agreement that could help de-escalate tensions after a 19-month trade war. Officials are still working on the final details of the signing of the deal, China's Commerce Ministry said on Thursday.