China's industrial profits surged in June despite weak consumer sentiment

China's industrial profits experienced accelerated growth in June, despite businesses contending with diminished consumer sentiment amid an uncertain economic recovery. Official data released on July 27, 2024, indicated a 3.6 per cent year-on-year increase in profits last month, following a 0.7 per cent gain in May. First-half earnings rose by 3.5 per cent, up from the 3.4 per cent increase reported for the January-May period, according to the National Bureau of Statistics (NBS).

In a separate statement, NBS statistician Wei Ning said, “Relatively rapid industrial production growth, coupled with a significant easing in factory-gate price declines since the second quarter, have promoted a stable recovery of corporate revenue.”

“Meanwhile, we should also see that insufficient domestic effective demand has constrained the continuous improvement of corporate performance, and the severe and complex international environment has increased the operating pressure of enterprises."

These robust figures contrast with a slowing economy, which fell short of forecasts in the second quarter. The consumer sector remained downbeat amid job market challenges and a protracted housing downturn. Notably, about half of the more than ten mainland-listed alcoholic beverage firms that released first-half earnings forecasts anticipated losses.

China leads as the top producer of aluminium, accounting for nearly 60 per cent of the world's aluminium smelter capacity.

Despite escalating trade tensions with the West, companies such as optical transceiver firms Zhongji Innolight and Suzhou TFC Optical Communication forecast substantial increases in first-half earnings. These suppliers for U.S. chip giant Nvidia have benefited significantly from the global build-out of artificial intelligence infrastructure.

In an effort to support its fragile economy, China is intensifying monetary stimulus measures. Markets were surprised for a second time on July 25, by an unscheduled lending operation at significantly lower rates. This move followed recent cuts to several benchmark lending rates after a top leadership meeting that outlined other major reforms.

Additionally, on July 25, 2024, the state planner and finance ministry announced plans to allocate approximately RMB 300 billion from ultra-long special treasury bonds. These funds are intended to bolster a nationwide equipment upgrade and consumer goods trade-in campaign.

The breakdown of NBS data revealed a 0.3 per cent profit increase for state-owned firms in the first half, an 11 per cent gain for foreign firms, and a 6.8 per cent rise for private-sector companies. The industrial profit figures encompass firms with annual revenues of at least RMB 20 million ($2.75 million) from their main operations.