US economy

China's industrial profits shrink most since late 2011

© Reuters. A worker directs a crane lifting steel rails at a steel factory in Handan

BEIJING (Reuters) – Profits at China’s industrial firms suffered their worst contraction since late 2011 in the first two months of this year, data showed on Wednesday, as increasing strains on the economy in the face of slowing demand at home and abroad took a toll on businesses.

The sharp decline in profits suggests further trouble for the world’s second largest economy, which expanded at its slowest pace in almost three decades last year. The government has already lowered the economic growth target this year to 6.0-6.5 percent, from 6.6 percent in 2018.

Profits notched up by China’s industrial firms in January-February slumped 14.0 percent year-on-year to 708.01 billion yuan (£80 billion), the National Bureau of Statistics (NBS) said on its website on Wednesday. It marked the biggest contraction since Reuters began keeping records in October 2011.

The data combines figures for January and February to smooth out distortions caused by the week-long China’s Lunar New Year.

The drag was mainly due to price contractions in key industrial sectors such as auto, oil processing, steel and chemical industries, Zhu Hong of the statistics bureau said in a statement accompanying the data.

Zhu said the timing of Lunar New Year holidays that fell in early February also had a bigger negative impact on business operations this year than in 2018.

The slowdown was in line with Jan-Feb’s factory output growth, which slumped to a 17-year low pressured by weak demand at home and abroad.

The trade war with the United States has put a dent on factory activity, corporate earnings, business sentiment and overall consumption in a blow to the economic outlook.

Policymakers have acknowledged the country’s economy is facing increasing downward pressure, hurt by multi-year campaigns to curb debt risks and pollution, while the trade war with the United States took a toll on export orders and employment.

Beijing is beefing up measures to support the manufacturing industry by cutting the value-added tax, increasing infrastructure spending and reducing direct government intervention.

Yet, the support measures are taking time to kick in. Most analysts believe economic activity may not convincingly stabilise until the middle of the year.

Earlier this month, premier Li Keqiang announced hundreds of billions of dollars in additional tax cuts and infrastructure spending, but officials vowed they would not resort to massive stimulus like in the past, which had driven up a massive debt pile.

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