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China's Industrial Profits See Worst Start to a Year Since 2009

Autos, oil processing, steel, and chemicals all saw drops.

The profits of Chinese industrial companies had the worst start to a year since the global financial crisis due to weaker factory inflation, slowing production and seasonal factors.

Manufacturing companies’ profits in January and February declined 14% from the same two months a year earlier, the National Bureau of Statistics said in a statement. That compares with a 1.9% drop in the single month data for December.

Key Insights

China’s manufacturers are squeezed by slower factory inflation, and industrial output also trailed estimates in the first two months

Tax reductions will provide some relief to those firms this year, while global demand will likely stay weak amid the slowing European economy and trade talks with the U.S.

The timing of the Lunar New Year -- around which many factories and companies shut down -- has weighed on the headline profit growth, according to the NBS in a separate statement after the data.

 Industrial profits are a lagging indicator and probably won’t recover until September, months after the economy starts to improve, said Hunter Chan, a Hong Kong-based economist Standard Chartered Plc.

What Bloomberg’s Economists Say

"China’s plunging industrial profits will make it harder for the economy to transit to a self-sustaining recovery once policy-induced stabilization takes hold."-- China economist David Qu wrote in a note.

China combines the readings for the first two months to smooth out effects of the traditional holiday, which falls in January or February. There is no February single-month reading.

The main sectors including auto, oil processing, steel, and chemicals saw drops in their earnings from a year earlier. Manufacturers of consumer goods saw a healthy profit growth in the first two months, according to the NBS.

By Bloomberg News

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