China corporate profits set for third year of declines

Stay informed with free updates

Simply sign up Chinese Business and Finance myFT Digest — delivered straight to your inbox.

Chinese corporate profits are set to show a third straight year of decline in 2024, a trend expected to continue this year as inflationary pressures weigh on the world’s second-largest economy.

According to the latest data from the National Bureau of Statistics, corporate profits of companies with annual revenue above Rmb20mn ($2.7mn) fell an average of 4.7 percent year-on-year between January and November. This is more than the 4 percent decline seen throughout 2022 when the country was under pandemic lockdown.

Revenues grew just 1.8 percent year over year between January and November 2024 over the same period in 2023. This compares with 5.9 percent growth in 2022 the previous year

In addition, 25 percent of China’s companies with revenues of more than Rmb20mn between January and November 2024 posted outright losses, compared with 16 percent in the full year of 2019 before the pandemic, NBS data showed. Company information covers 500,000 companies.

“The biggest reason behind this recession, I would say, is Inflation“said Laura Wang, chief China equity strategist at Morgan Stanley

Fourth-quarter GDP numbers on Friday will show whether the country has reached its official economic growth target of about 5 percent in 2024 amid concerns about a stagnant economy and low consumer confidence.

China is grappling with a two-speed economy, with strong exports offsetting weak domestic demand as households deal with a deep property slump.

Official data on Monday showed stronger-than-expected trade growth last month. Exports rose 10.7 percent in dollar terms in December on the year, while imports rose 1 percent, beating average analyst forecasts for a 7.3 percent rise and 1.5 percent decline, respectively, from Reuters.

In November, exports rose 6.7 percent year-on-year, while imports fell 3.9 percent.

This information comes just a week before Donald Trump takes office in the United States A promise to raise tariffs sharply on Chinese products. China’s trade surplus with the United States rose 6.9 percent to $361.03 billion in 2024 from a year earlier, China’s tariff data showed.

Analysts at Barclays said the double-digit export growth indicated Chinese manufacturers were “front-loading” ahead of potential Trump tariffs.

But China’s growing trade surplus is not enough to offset oversupply among producers, leading to fierce competition that drives down prices for their products and hurts profits.

NBS said 28 months producer price inflation — the prices at which factories sell their products — economists predict the trend will continue this year

“Corporate profits have thinned amid prolonged PPI deflation,” Citi analysts said in a note. “Asset end-demand and over-competition can only send profitability lower, weighing on individual investment decisions.”

China’s giant state-owned companies were the worst performers in NBS corporate profit data, despite being heavily promoted by President Xi Jinping’s government.

Their profits fell 8.4 percent year-on-year between January and November, compared with 1 percent or less for private or foreign firms, the group’s best performers.

The poor performance of state-owned enterprises – which are often pulled by the government to play various social or geopolitical roles, from buying stocks to supporting Xi’s Belt and Road Initiative international infrastructure program – was a strain on financial resources, analysts said.

“At the current rate of decline, I don’t think they can sustain for many [more] This kind of policy of the year,” said Lixin Colin Xu, former chief economist of the World Bank’s Development Research Group and an expert on Chinese companies.

Data from the China Association for Public Companies showed that 23 percent of 5,368 companies listed in mainland China reported annual net losses in the first nine months of 2024, with 40 percent falling in profits and 45 percent in revenue.

Morgan Stanley’s Wang said he expected 5 percent annual profit growth in 2025 from companies in the MSCI China Index, a benchmark followed by international investors, compared with 7 percent a year earlier.

In an inflationary environment where revenue growth was difficult to achieve, companies had to focus more on returning investors through mechanisms such as share buybacks and dividends, he said.

Previously, companies focused more on reinvestment to capture growth opportunities. “For the past 20 to 30 years, they’ve all been growing and working under that mindset,” Wang said. “Now they have to change it.”

Additional reporting by Arjun Neil Alim in Shanghai