Finance & Economics

Cinda Securities Expects China’s Industrial Profits Rebound

In 2024, the profit indicator of China’s largest industrial enterprises, for which 2023 was the second consecutive year of downturn, may increase slightly against the background of improving prospects for Beijing’s export activities and the implementation of a policy of support from local authorities.

Cinda Securities Expects China’s Industrial Profits Rebound

Positive expectations related to the dynamic of the external demand for goods manufactured at Chinese production facilities are based on such facts as stock replenishment in the United States. If this vision of prospects of the future is materialized in the space of objective economic reality, an increase in industrial profits will be recorded in China in 2024. In this case, the positive dynamic is likely to be moderate, but it will be an improvement in the state of affairs compared to the configuration of the situation that was observed during the previous two years.

Special attention should be paid to the fact that the Chinese industry began to show what can be described as signs of recovery last year. These indicators did not affect the overall result of 2023, which turned out to be negative, but at the same time they signaled a gradual improvement in the situation, which is not widespread, however, the very fact of the corresponding trend indicates a high probability that the worst days are beginning to dissolve into the darkness of the all-consuming past.

Industrial profits in China began to gain momentum in the summer. December was the fifth consecutive month of growth.

According to data from the National Bureau of Statistics, which was published at the end of last week, the total profit of Chinese industrial enterprises with an annual income for the main activity of at least 20 million yuan ($2.8 million) fell by 2.3% last year. In 2022, this indicator showed a decrease of 2.3%.

Xie Yunliang, chief macroeconomic analyst at Cinda Securities, predicts that industrial profits of China’s companies during the current year will demonstrate growth in the range of 7% to 11%. According to the expert, the positive dynamic will be recorded against the background of circumstances such as the recovery of prices and inventories in the US bottom out. Xie Yunliang believes that the United States will replenish stocks in the middle of 2024. The analyst expects that China’s exports will improve against this background.

The forecast, the content of which is optimistic, was made public after it became known that in 2023 the economic growth of the Asian country amounted to 5.2%. It is worth noting that many experts had high hopes for the positive impact of the abolition of the zero-tolerance policy for coronavirus, associated with numerous restrictions, on economic activity in China. However, the expected recovery momentum turned out to be short-term. The completion of the specified policy has not become the driving force behind the rapid and sustained growth of the economy. At the same time, it is worth noting that the result of 2023 is generally positive and the corresponding indicators cannot be canceled by unfulfilled hopes for a more dynamic recovery after the period of the coronavirus pandemic.

In 2024, Beijing will have to solve several problems that are factors of pressure on the economy. In this case, implies a crisis in the real estate sector, a slowdown in global growth, and risks associated with deflation.

Data from the National Bureau of Statistics shows that China’s industrial production increased by 6.8% in December. This is the fastest pace since 2021.

Analysts at Sinolink Securities believe that the improvement in external demand, represented by interest-rate sensitive industries in the US, may stimulate fundamental repairs and inventory replenishment in some sectors of Chinese fabrication. In this case, the experts meant textiles, chemical fibers, and special equipment.

In October, Beijing issued additional sovereign bonds worth 1 trillion yuan. Sinolink Securities analysts called this factor and three large projects in the real estate market the driving force behind the acceleration of demand recovery in areas such as mining and related industries.

The mentioned major projects include the building of affordable housing, the renovation of urban villages, and the construction of emergency public facilities. Beijing believes that these initiatives will help revitalize the real estate sector.

The Chinese authorities are expected to set an annual economic growth target of about 5% in 2024. According to preliminary information, the relevant target will be announced during the annual parliamentary gathering in March. Large provinces and municipalities set their economic growth purposes at 5% and above.

A report by the financial analytical center China Finance 40 Forum, published at the end of last week, notes that Beijing needs to introduce additional incentive measures to activate the positive dynamic vector of the economic system. Experts say the Chinese authorities must commit themselves to at least 11 trillion yuan to solve the problem of insufficient demand. Also, in their opinion, Beijing should contribute to the annual growth of social financing by at least 11%.

As we have reported earlier, Fidelity Forecasts China’s Economy Gradual Improvement in 2024.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.