BEIJING (Reuters) -China’s industrial profits continued to fall in June, data showed on Sunday, as entrenched producer deflation put more margin pressure on businesses in the face of subdued domestic demand and lingering global trade uncertainty.
China’s economy slowed less than expected in the second quarter in a show of resilience to U.S. tariffs. But punishing price wars among producers have prompted Beijing to pledge tougher regulations for autos and solar panels, among other industries engaged in cutthroat competition.
Profits at China’s industrial firms fell 4.3% in June from a year earlier, following a decline of 9.1% in May, while first-half profits were down 1.8% versus a slide of 1.1% in the period from January to May, National Bureau of Statistics data showed.
As China faces a complex and changing external environment, it must deepen the formation of a “unified national market, expand and strengthen domestic circulation and promote high-quality development of the industrial economy”, said Yu Weining, a statistician at the bureau.
Lu Zhe, chief economist at Soochow Securities, said industrial profits may improve, as China’s actions against self-destructively fierce competition and a government trade-in scheme – a version of a “cash for clunkers” programme – should help control the price war amongst companies and expand consumer demand.
Factory-gate deflation deepened last month to its worst in almost two years, as softening domestic demand worsened overcapacity woes.
State-owned automakers Guangzhou Automobile Group and JAC Group expect to post their biggest ever second-quarter losses next month.
China’s leaders pledged this month to ramp up efforts to regulate aggressive price-cutting, fuelling expectations that a fresh round of industrial capacity cuts might be approaching.
But analysts say this round of supply-side reforms will not pull China out of deflation as quickly as a decade ago, citing challenges such as job losses.
State-owned firms recorded a 7.6% decline in profits in the first half. Private-sector companies reported a rise of 1.7% while foreign firms logged a 2.5% gain, the data showed.
Industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.8 million) from their main operations.
($1=7.1561 Chinese yuan renminbi)
(Reporting by Qiaoyi Li, Jenny Su and Farah Master; Editing by Clarence Fernandez, Jamie Freed and William Mallard)
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