(Yicai Global) Nov. 28 – Large Chinese industrial firms improved their profit structure somewhat in the first 10 months of the year, despite a steeper drop in profit, according to the latest official statistics.

Total profit at domestic industrial firms with annual revenue of at least CNY20 million (USD2.8 million) fell 3 percent to CNY6.98 trillion (USD968.8 billion) in the 10 months ended Oct. 31 from a year earlier, the largest annual drop since September 2020, data from the National Bureau of Statistics showed yesterday. That compared with a 2.3 percent decline in the January to September period.

The electricity and heat supply industry saw a significant recovery in profit, according to the NBS data. Profit growth in the mining industry fell from a high level, while profit decline in the manufacturing industry accelerated. Of the 41 industrial categories, 19 reported annual increases in total profits.

Some midstream and downstream sectors enjoyed a considerable recovery in profit though overall earnings at industrial firms fell in the first 10 months, said Zhu Hong, a senior NBS statistician.

The profit structure continued to improve among firms in the period, Wu Chaoming, deputy director at Chasing Institute, told Yicai Global. Profits at midstream and downstream players fell more slowly or even recovered as the producer price index declined faster in upstream sectors.

“The government's policy package to stabilize the economy has also contributed to the improvement," Wu said. "Enhanced financial support for green and low-carbon industries and the upgrade and renovation of equipment played a key role in driving production and profit recoveries in the midstream manufacturing industry.”

Costs remained high for industrial companies. In the first 10 months, each CNY100 (USD14) of revenue would cost firms CNY84.84 (USD12) to generate, unchanged from the first nine months, but up CNY1.07 (15 US cents) from the same period last year, according to the NBS.

High costs are mainly due to a lower industrial capacity utilization rate, which weakened industrial firms' scale effect, said Li Chao, chief economist at Zheshang Securities. Profit at industrial companies is set to stabilize if the rate recovers steadily this quarter, Li added.

There are still challenges for the sustained profit recovery and downward pressure remains, Wu said. A weaker recovery in domestic consumption and real estate investment, as well as greater pressure from slower exports this quarter would sabotage a sustained recovery of industrial profit.

Recent scattered Covid-19 outbreaks plus the increasing prospect of a global economic recession also weighed on the recovery of profits at industrial enterprises, Zhu noted.

Editors: Tang Shihua, Futura Costaglione