China: Scary industry profit data – ING

Iris Pang, economist at ING, suggests that falling by 9.9% YoY in October after a 5.3% contraction in the previous month, China's headline industrial profit numbers look scary.

Key Quotes

“It is the worst year-on-year growth since the data release began in 2011. It hints that manufacturers have been suffering a lot. But the details paint a different picture, some industries are earning big profits.”

“Trade-related manufacturers have suffered from the trade war. Not surprisingly, their profits have been heavily squeezed.”

“The degree of damage depends a lot on whether there will be a tariff rollback. Not only that, such a rollback could alleviate the burden shared by Chinese exporters and manufacturers. US consumers too would share less of the tariff burden and would recover some of the lost consumption demand.”

“This divergence of profitability among different industries will remain until there are big improvements in the trade negotiations. And we will gauge this on the degree of tariff rollbacks.”

“If those are significant, for instance taking us back to the situation in May 2019, then exporters should be able to win more export orders and trade-related manufacturing activities will obviously increase. At the same time, the government can slow down the pace of infrastructure investment.”

“That could significantly paint a completely different picture regarding industrial profitiablity. However, it is too early to make such a call. And I'm afraid we remain sceptical about the prospects of any significant progress on tariff rollbacks.”