Profits at China's major industrial companies fell 12% in July, hit by an energy crisis, which was exacerbated by extreme weather, and rising geopolitical tensions with some of the country's major trading partners.

Although the supply side has been less impacted by containment measures compared to previous months, the energy crisis, triggered by prolonged heat waves in the southwest and south of the country, and efforts by the West to reorganize industrial chains, are obstacles for Chinese industries, analysts point out.

According to official data released today by China's National Bureau of Statistics (NSO), the combined profit of Chinese industrial enterprises with annual turnover above 20 million yuan (about 2.9 million euros) fell 1.1% year-on-year to 4.9 trillion yuan (712 billion euros) in the first seven months of 2022.

In July, profits stood at 622.7 billion yuan (€90.5 billion), a year-on-year drop of 12% and the lowest monthly figure since July 2020. Compared to June, the drop amounted to nearly 25%.

"China is facing high cost levels, insufficient market demand for some sectors, and increasing operating pressure as the domestic and international environment has become more complex and severe," GNE official Zhu Hong pointed out in a statement. "Much work is still needed to achieve a stable recovery of the industrial economy," he added.

Of the 41 sectors included in the survey, 25 recorded a drop in profit. The steel industry was the worst affected, with steel mills' profits falling by almost 81% year-on-year in the first seven months of the year.

The building materials sectors have also been hit hard by a major downturn in the housing market.

Coal mining and power producers performed well, with profits doubling compared to the same period last year.

This has come at a time when extreme heat waves have increased demand for electricity, prompting Beijing to call for increased coal production as blackouts have caused factories in southwestern areas of the country to shut down.

The numbers were particularly bad among foreign-owned and private companies.

While state-owned industrial enterprises reported an 8% increase in profits to 1.74 trillion yuan (€253 billion) in the first seven months of 2022, the net profit of foreign-funded enterprises fell 14.5% to 1.09 trillion yuan (€145 billion). Among private companies, factory profits fell 7.1%, to 1.3 trillion yuan (€189 billion).

Beijing has accelerated infrastructure investment and bond issuance since the beginning of this year to avoid economic stagnation, but these policies generally benefit state actors.

Net income for companies in the rail, ships and other transport equipment sector increased by more than 29% last month, while the electrical and machinery sector had gains of 25.6%.(Lusa)