Covid curbs and a drop in demand knocked profits of China’s industrial firms down by 1.1% in the January-July period from the previous year, new data released by the National Bureau of Statistics said on Saturday.
Factory margins were squeezed, while heatwaves caused power shortages and interrupted production.
The bureau did not report standalone figures for July.
Factory production and activities in major manufacturing hubs like Shenzhen and Tianjin were hit in the month as fresh Covid curbs were imposed.
In July, China‘s industrial output growth slowed to 3.8% on-year from 3.9% in June.
Searing heatwaves have swept across China‘s vast Yangtze River basin since mid-July, hammering densely populated cities from Shanghai to Chengdu.
Liabilities at industrial firms jumped 10.5% from a year earlier in July, matching the 10.5% increase in June, the statistics bureau said.
China‘s economy narrowly escaped contraction in the three months to June, as strict Covid control restrictions and a distressed property sector pummelled demand.
Policymakers are striving to prop up the flagging economy by doubling down on infrastructure spending.
The industrial profit data covers large firms with annual revenues of over 20 million yuan ($3 million) from their main operations.
Extreme Weather
Meanwhile, power shortages caused by extreme weather are expected to “add headwinds to an already fragile economy”, according to a note from Barclays analysts on Saturday.
“We estimate the power shortage will drag Q3 GDP growth” by 1-2 percentage points, they said. “We expect manufacturing PMI to stay in contraction in August due to production disruptions.”
But they believed power shortages would ease in the fourth quarter.
- Reuters with additional reporting and editing by Jim Pollard
Note: This report was amended on August 27, 2022 to comment from Barclays analysts.
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