China Industrial Profits Fall in August on COVID woes, Yuan Slump

By Ambar Warrick China’s factories saw their profits shrink further in August, data showed on Tuesday, as continued disruptions from COVID-related lockdowns, a weakening yuan, and a power shortage dented production.

Chinese industrial profits shrank 2.1% between January and August in comparison to the same period last year, data from the National Bureau of Statistics showed. The rate of decline nearly doubled from July’s reading of negative 1.1%. 

The bureau did not provide standalone figures for August. 

The reading is China’s worst rate of industrial profits in two years, and comes chiefly on the back of manufacturing disruptions from COVID lockdowns. It also marks a second consecutive month of declines for industrial profits, after a short-lived rebound in June. 

Chinese importers are also facing headwinds from a rapidly weakening yuan. The currency was trading at a two-year low on Tuesday, and has fallen despite several supportive measures by the Chinese government.

Purchasing managers index (PMI) data showed Chinese manufacturing activity shrank for a second consecutive month in August, as Beijing kept introducing new curbs in response to fresh COVID outbreaks. Southwestern megacity Chengdu and trading hub Yiwu saw new lockdowns in August, although the government has since wound down curbs. 

Still, investors fear more anti-COVID measures by the Chinese government, given that Beijing has shown no indication of winding down its zero COVID policy. Lockdowns resulting from the policy are seen as the biggest driver of an economic slowdown in China this year.

The Chinese economy barely grew in the June quarter, with growth now expected to slow in the three months to September. A slowdown in Chinese industrial activity has severely dented commodity markets this year, as traders feared that demand in the world's largest oil and metals exporter will dry up. 

August trade data showed that both Chinese exports and imports have slowed substantially, due to weakening local demand and production levels. Focus is now on upcoming Chinese PMI data for September, due on Friday, for more cues on the manufacturing sector.


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