China’s industrial profits fall in June amid trade tension with US - GulfToday

China’s industrial profits fall in June amid trade tension with US


Profit fall of 3.1% was registered in June from a year earlier to $87.5 billion. Reuters

Profits earned by China’s industrial firms contracted in June after a brief gain the previous month, fuelling concern that a slowdown in manufacturing from a bruising trade war will drag on economic growth.

China’s industrial profits have been softening since the second half of 2018 as the economy slowed and the US-China trade dispute escalated, with many industrial firms putting off business decisions and scaling back manufacturing investment.

Economic growth in the second quarter slowed to a near 30-year low.

Industrial profits fell 3.1% in June from a year earlier to 601.9 billion yuan ($87.5 billion), according to data released by the National Bureau of Statistics (NBS) on Saturday, following a 1.1% gain in May.

In the first six months, industrial firms earned profits of 2.98 trillion yuan, down 2.4% from a year earlier, compared with a 2.3% drop in January-May.

The drop in first-half profits was driven by declining profits in the auto, oil processing and steel sectors, Zhu Hong of the statistics bureau said in a statement accompanying the data.

Producer price inflation, one gauge of industrial profitability, eased to zero in June from a year earlier, rekindling worries about deflation, which could prompt authorities to launch more aggressive stimulus measures.

US and Chinese negotiators will meet on Tuesday for the first time since their presidents, Donald Trump and Xi Jinping, agreed in late June to revive talks in a bid to end the year-long trade war.

The governments of the world’s largest economies have levied billions of dollars of tariffs on each other’s imports, disrupting global supply chains and shaking financial markets in the dispute over how China does business with the rest of the world.

June marked the first full month of higher US tariffs on $200 billion of Chinese goods, which the United States imposed after trade talks broke down. Both exports and imports fell.

Saturday’s data showed that profits from the construction material and machinery industries helped cushion the fall in overall profits in the first half, likely due to higher government spending on infrastructure, which has supported some companies, such as railway equipment makers, miners and metal producers.

Sany Heavy Industry Co Ltd said this month that it expected first-half profits to jump 91.8%-106.6% from a year earlier.

However, earnings for telecommunications and electronic equipment manufacturers, which are more vulnerable to US tariffs than other product classes, declined 7.9% in Jan-June.

The most-actively traded iron ore contract on the Dalian Commodity Exchange rose 16.4% in June, weighing on profits in the steel sector.

Profits at China’s state-owned industrial firms were down 8.7% on an annual basis for the first six months, according to the statistics bureau.

Liabilities of industrial firms rose 5.6% year-on-year as of the end of June versus a 5.3% increase by end-May.

Private sector profits rose 6.0% in Jan-June, slowing from 6.6% in the first five months.

US President Donald Trump on Friday offered a pessimistic view on reaching a trade deal with China, saying Beijing may not sign one before the November 2020 election in hopes a Democrat who will be easier to deal with, will win.

During a wide-ranging session with reporters in the Oval Office, Trump said China is using stalling tactics and he doubted a trade deal will be reached any time soon, with lead negotiators for the two countries to meet in Shanghai next week.

Trump has been tough on Chinese trade practices throughout his presidency and has levied billions of dollars in tariffs on Chinese imports and threatened another $325 billion if no progress is reached.

China levied tariffs of its own against US products and together the two countries have disrupted global supply chains and shaken financial markets in their dispute over how China does business with the rest of the world.

Trump said China may be delaying a deal in a bid to wait him out in the hope a Democrat wins in November 2020.

“I think that China will probably say ‘let’s wait,’” he said. “‘Let’s see if one of these people who gives the United States away, let’s see if one of them could get elected.’” He said the Chinese leadership is probably thinking, “Maybe we can deal with another dope or another stiff” instead of him.

The White House said on Wednesday that US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer would meet with Chinese Vice Premier Liu He for talks in Shanghai starting on July 30.

It would be their first face-to-face meeting since Trump and Chinese President Xi Jinping agreed to revive talks to end their yearlong trade war.


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