at the China Hongqiao Group Ltd Factory in Zouping, China, on Monday, Nov. 4, 2013. Photographer: Brent Lewin/Bloomberg
© Bloomberg

Chinese industrial profits slumped by a record 8 per cent last month, as Beijing’s targeted stimulus efforts failed to arrest a slowdown in the key driver of China’s economy.

The fall in profits in December highlights the challenges facing an industrial sector racked by overcapacity and falling prices, adding to pressure on authorities to loosen monetary policy and boost infrastructure spending to cushion the slowdown.

The 8 per cent year-on-year drop in profits last month compares with 4.2 per cent in November and is the biggest since the current data series began in late 2011, figures released on Tuesday showed.

For the full year, profits rose 3.3 per cent, the slowest growth since at least 2008, when Chinese manufacturers were slammed by the global financial crisis.

“As the economy enters the ‘new normal’, the industry sector faces increased downward pressures, unreasonable structures and weak innovation capability,” Mao Weiming, vice-minister at the Ministry of Industry and Information Technology, said at a press conference.

While falling prices for oil and other inputs have supported profit margins, the positive impact has been outweighed by falling prices for finished goods, He Ping, a statistician at the bureau’s industrial department, said in a statement accompanying the data.

“The impact of lower prices on the slide in profits is worsening,” he said.

China’s economy grew at 7.3 per cent in the fourth quarter last year, its slowest quarterly pace since the depths of the financial crisis in 2009.

The People’s Bank of China slashed interest rates in November in an effort to lower financing costs for companies. Last week the central bank injected funds into the banking system via open-market operations for the first time in a year. It followed up with additional cash injections on Tuesday.

The Shanghai Composite hit a five-year high on Friday, with optimism driven largely by expectations of further easing. Most analysts expect two cuts to banks’ required reserve ratio in 2015 and at least one more rate cut.

Commodity-linked sectors have been especially hard hit in recent months. Mining sector earnings tumbled 23 per cent last year. Oil and petrochemical refiners also saw profits reduced. Despite the fall in crude prices, many refiners remain subject to crude prices agreed to before the recent price drop, even as prices for their output fall.

Manufacturing has held up better, with profits growing 6.5 per cent, while profits from utilities such as electricity, heat and water grew 17 per cent, boosted by lower energy prices.

Get alerts on Asia-Pacific when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article