China’s industrial profits fell 2.3% in 2023 Reuters via

© Reuters. FILE PHOTO: Solar panels lie in front of factories at Jinjie Industrial Park in Shenmu, Shaanxi province, China November 20, 2023. REUTERS/Colleen Howe/File Photo

By Liangping Gao and Ryan Woo

BEIJING (Reuters) -Profits at China’s industrial firms fell 2.3% in 2023, their second straight yearly decline, due to sluggish demand at home and abroad, adding pressure on economic growth amid a deep property slump and deflationary risks.

The drop followed a 4.4% profit fall in the first 11 months from the same period a year earlier, according to data from the National Bureau of Statistics (NBS) on Saturday.

Last year’s profits decline was chiefly due to sharply lower factory-gate prices, driven by over-capacity in some industries, said economist Nie Wen at Hwabao Trust in Shanghai.

Industrial profits will likely rise by between 5% and 6% this year, as a slight improvement in demand and historic lows in inventories in China, Europe, the United States and Japan will lead to a rebound in industrial prices, Nie said.

There were some signs of improvement at the end of the year. For December alone, industrial profits rose 16.8% from a year earlier, down from a 29.5% jump in November and extending gains for a fifth month.

Profits fell 4% in 2022 due to strict COVID-19 curbs.

Profits in railway, ship and aerospace transport equipment rose 22.0% in 2023, supported by growth in shipbuilding orders, NBS said in a statement. Profits of the automobile industry increased 5.9% due to record-high automobile production.

China’s economy expanded by 5.2% in 2023, but its post-pandemic recovery has been shaky, with a protracted housing downturn, mounting deflationary risks and slowing global growth casting clouds over the outlook for this year.

China’s central bank announced on Wednesday that it was making a 50-basis point cut to bank reserves, the biggest in two years, sending a strong signal of support for a fragile economy and the country’s plunging stock markets.

Still, analysts say more stimulus is needed this year to get economic activity on more solid footing.

Nie said China’s GDP target for this year will likely remain at 5%.

“Chinese authorities will implement existing policies as soon as possible,” said Nie. “Markets expect another 1 trillion yuan ($140 billion) in special treasury bonds will be issued.”

Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.8 million) from their main operations.

($1 = 7.1632 renminbi)