Profit growth for major manufacturers still slows

Profits of China's major industrial firms grew 11.8 percent year on year in the first 11 months this year, down from the 13.6 percent expansion recorded during the first ten months this year, the National Bureau of Statistics said on Thursday.

In November, combined profits at industrial firms with annual revenue of more than 20 million yuan(US$2.89 million) fell 1.8 percent year on year to 594.75 billion yuan, compared with an increase of 3.6 percent recorded in October.

"The decline is mainly because of slower increase in the sector’s output and sales, drops in the rise of factory gate prices of industrial products and higher costs,” analyst He Ping at the National Bureau of Statistics said in a statement.

Profits in 34 of the 41 industrial sectors surveyed posted increase from a year ago, the NBS said, including upstream sectors such as oil extraction, coal and metal mining.  

The Central Economic Work Conference wrapped up last week in Beijing has pledged to offer deeper tax cuts and more government spending as the government aims to revitalize economy in wake of the uncertainties brought by the possible trade disputes between China and the US.

From April to October this year, growth of industrial profits has also been on the decline, dropping to 3.6 percent in October from 21.9 percent in April.

Pingan Securities wrote in a research note today that the profitability improvement in the long term would require more tax reduction measures to boost performance.

December's industrial profit is very likely to post further decline due to cost and profitability factors, and it estimate a 10 percent increase for industrial profit over 2018.

Nomura Securities also expects the downward trend in industrial profit growth to extend into 2019 given weakening domestic demand, the continued credit downcycle and an escalation in the China-US trade conflict.