China: Industrial profits severely squeezed – ING

Iris Pang, Economist at ING, points out that China’s industrial profit growth slowed to 3.6% year-on-year in October from 4.1% in the previous month, putting the year-to-date growth at 13.6% YoY in October, a slowdown from 14.7% YoY growth as of September.

Key Quotes

“Comparing the two growth rate measures, it would seem the profit squeeze among Chinese manufacturers has been severe.”

“On a monthly basis, there was a widespread slowdown. Lower commodity prices, like ferrous metals and crude oil, could be blamed for shrinking profits at mining companies and energy drillers. There may also be expectations of lower demand for commodities due to a slowing economy.”

“Looking forward, production costs could be lower if China were to cut tariffs on more imports. This would offset higher tariffs on imports from the US, at least to some extent.”

“That's not to say an escalation of the US-China trade war won't hurt profits of Chinese manufacturers. It will, especially in terms of exports and related supply chain manufacturers. But if China were to cut import tariffs, more businesses will survive.”