Veriton Investment

China’s Industrial Profits Extend Drop to Third Straight Month

(Bloomberg) -- China’s industrial companies saw their profits fall for a third straight month, adding to evidence that deflationary pressures and aggressive competition among producers are heaping stress on the economy.

Industrial profits declined 1.5% in July from a year earlier, falling the least since they began shrinking in May, according to data released Wednesday by the National Bureau of Statistics. For the first seven months of the year, earnings contracted 1.7%.

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Profit margins are thinning after domestic demand softened further and as a government-led campaign to curb excess competition takes time to translate into better earnings. The world’s second-largest economy weakened across the board in July, with consumer inflation slipping to zero while retail sale growth cooled.

Factory-gate prices have declined for 34 consecutive months, pointing to entrenched deflation that could hold businesses and households back from spending and act as a drag on corporate bottom lines.

While overseas shipments to non-US markets more than compensated for a drop in orders from America, a gauge of China’s new export orders fell at the quickest pace in three months, boding ill for foreign demand in the coming months.

Industrial profits are a vital gauge of the financial health of factories, mines and utilities, shaping their investment decisions in the months to come.

--With assistance from Yujing Liu.