China industrial profit growth slows to weakest pace this year

China's industrial profits expanded at their weakest pace this year in June, signaling a slowdown in the country's manufacturing recovery. Official data released on Saturday showed that profits at industrial firms rose 3.6% in June from a year earlier, down from a 0.7% increase in May. For the first half of 2024, profits climbed 3.5% compared to the same period last year.

The slowdown affects a broad range of industries, with mining and raw materials sectors particularly hit by falling oil prices. However, export-oriented industries such as electronics and automotive manufacturing continued to support growth, cushioning the overall slowdown. The data underscores the uneven nature of China's economic recovery, where external demand has helped offset persistent weakness in domestic consumption and property investment.

The figures matter because industrial profits are a key indicator of corporate health and economic momentum. The deceleration comes as policymakers grapple with deflationary pressures and a property slump that has weighed on business confidence. The slower profit growth may also reduce companies' willingness to invest and hire, posing risks to the broader economy.

According to the National Bureau of Statistics, profits at state-owned industrial firms fell 2.2% in the first half, while private-sector profits rose 6.8%. Among sectors, the computer, communication and other electronic equipment manufacturing industry saw profits surge 24% in the first six months, while the oil and gas extraction industry saw profits drop 10.3%.

Yu Weining, chief statistician at the National Bureau of Statistics, attributed the moderation to base effects and declining oil prices, which squeezed profits in related industries. He noted that the overall recovery remains fragile and uneven, with external demand providing a key buffer.

Looking ahead, analysts expect industrial profit growth to remain subdued in the second half, as fading export orders and continued property weakness weigh on activity. Policymakers may need to introduce additional stimulus measures to support the manufacturing sector and stabilize the broader economy.