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