Profits at China’s largest industrial enterprises, having suffered their second straight yearly decline in 2023, are expected to see a moderate rise this year thanks to an improved export outlook and Beijing’s supportive policies.
An improvement in external demand led by stock replenishment from the United States would partly help drive further recovery of industrial profits in the world’s second-largest economy in 2024, analysts said.
Industrial profits have been gaining recovery momentum since the summer, and December marked the fifth month of year-on-year increases, despite the overall figure for 2023 falling again.
Total profits at industrial enterprises with annual revenues of at least 20 million yuan (US$2.8 million) from their main operations fell by 2.3 per cent last year, the National Bureau of Statistics (NBS) confirmed on Saturday, following a 4 per cent year-on-year drop in 2022.
We believe that the US will replenish stocks in the middle of 2024, and China’s exports may benefit from that
Xie Yunliang, chief macro analyst from Cinda Securities, expects industrial profits at Chinese firms to increase by between 7 and 11 per cent this year as prices rebound and inventories in the US bottom out.
“We believe that the US will replenish stocks in the middle of 2024, and China’s exports may benefit from that,” he said on Sunday.
A series of challenges, though, remain for Beijing to tackle this year, including a continued property market crisis, mounting deflationary risks and slowing global growth.
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But China’s industrial output has also offered some hope, as it expanded by 6.8 per cent in December, representing the fastest pace since 2021, according to the NBS.
“Improved external demand, represented by interest-rate sensitive industries in the US, can drive fundamental repairs and inventory replenishment in some industries in China,” Sinolink Securities said over the weekend, pointing to special equipment, textiles and chemical fibres.
The three-major-projects model refers to building affordable housing, renovating urban villages and constructing emergency public facilities, which Beijing considers the bedrock to ensure a rebound in the real estate sector.
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China is widely expected to continue setting its annual growth target this year at around 5 per cent, with the goal likely to be officially announced during March’s annual parliamentary gathering.
However, authorities would still need to keep rolling out stimulus, according to a report by financial think tank, the China Finance 40 Forum, issued over the weekend.
To tackle an acute challenge of insufficient demand, it is necessary for China to take on debt of at least 11 trillion yuan (US$1.5 trillion) this year and promote annual growth in social financing of at least 11 per cent, it suggested.
