Chinese industrial profits slump as trade war hits home

China’s industrial profits fell at the steepest rate in eight months in October, data released overnight showed, undermined by Beijing’s increasingly bitter trade war with Washington.

The National Bureau of Statistics said industrial profits fell at 9.9% year-on-year pace in October, to 427.56bn yuan (£47.28bn). That compared to a 5.3% decline in the previous month, and was the sharpest fall since the start of 2019.

For the year-to-date, industrial profits fell by 2.9% to 5.02trn yuan, compared to a 2.1% decline in the first nine months of 2019.

The underlying data, meanwhile, showed an even steeper drop.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said: “The underlying levels data dropped even more sharply, falling 23.3% year-on-year after the 5.6% rise in September, indicating that some firms fell out of the sample as their profits deteriorated. The authorities adjust the headline for these sampling distortions, but provide little information on the method and the headline often looks on the rosy side.

“Profits appear to have shifted decisively down again, after seeming to stabilise in recent months.”

Deterioration was seen across sectors, with both commodity-related and non-commodity manufacturing, along with mining, showing weakness. Manufacturing margins contracted by 4.9% in the first 10 months of the year.

China is battling a consumer slowdown which is being compounded by its trade war with the US. Beijing and Washington are thought to be close to agreeing a phase one deal, first expected in November, but phase two talks – which will commence once the first deal is agreed – are likely to be tougher, as they will cover more contentious issues.

Jasper Lawler, head of research at London Capital Group, said: “The steepest fall in Chinese industrial profits in eight months suggest China is still feeling the heat from the trade war on top of a more widespread growth slowdown. Investors can stomach a slowdown in China if they see an endpoint via the phase one trade deal; if the deal doesn’t materialise and the data out of China continues to weaken, then things could go south quickly.”

Chinese stocks came under pressure following the release of data, despite hopes that the phase one deal was imminent. Both the Shanghai Composite and CSI300 closed in the red.

Han Tan, market analyst at FXTM, said: “Markets can only ignore the dismal economic data for so long, with China’s industrial profits drawing attention to the strains faced by the world economy.

“December 15 now acts as the next market in this protracted saga, with investors sill speculating if the trade accord can be sealed before president Donald Trump has to decide whether to push on with his tariff threat on a further $160bn worth of Chinese goods.”