Weekend data: China’s industrial profits rise 20% in August, reversing July decline

China’s industrial profits returned to positive territory in August, with National Bureau of Statistics (NBS) data showing a 20.4% year-on-year increase after a 1.5% drop in July. Profits for the January–August period rose 0.9% compared with a 1.7% decline in the first seven months.

The rebound was partly helped by Beijing’s crackdown on aggressive cost competition in autos, solar, and other industries, which had previously eroded margins. Still, demand weakness, a property sector slump, and a fragile labour market continue to weigh on growth.

Factory-gate price declines moderated, reflecting less intense price wars, but output and retail sales in August registered their weakest gains since 2023. Major stimulus remains off the table, as authorities balance growth support with concerns about overheating financial markets. Analysts suggest that U.S. Federal Reserve rate cuts could give the People’s Bank of China more leeway to ease policy.

Performance diverged across ownership: state-owned enterprises reported a 1.7% drop in profits for the eight-month period, while private firms rose 3.3% and foreign-invested firms gained 0.9%. The data covers firms with annual revenues above 20 million yuan (US$2.8 million).

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Nomura on the rebound:

• advises caution
• part of the profit growth was due to a low base in August 2024, the growth rate in September may rise further on an even lower base
• upstream sectors have seen price gains and improved profitability amid ongoing “anti-involution” policies, but weak demand could negatively impact downstream industries
• the survey only covers large enterprises with annual revenue above RMB 20 million, which may not reflect the true situation of smaller firms, many of which are in downstream sectors
• monthly profit figures are derived from year-to-date data, which are subject to frequent revisions
• the sample itself is subject to survivorship bias, as firms with revenue below RMB 20 million may be excluded
• some of the “profit” may be driven by rapid investment gains amid a buoyant stock market

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Eyes on market impact:

• Equities: Signs of profit recovery may offer near-term support for Chinese industrial and EV stocks, though weak demand limits upside.

• FX: Yuan stability hinges on PBOC’s policy space; Fed rate cuts could ease pressure.

• Commodities: Softer producer deflation may suggest less downside pressure on raw material prices.

This article was written by Eamonn Sheridan at investinglive.com.