China's industrial profits rise though deflation concerns linger

Still, profits for the first 11 months were down 4.4% from the same period a year earlier, easing from a 7.8% decline through the first 10 months.

Yu Weining, an NBS analyst, attributed November’s rise to government policies. “As macro policies take effect and domestic demand gradually recovers, the rebound in industrial production picked up and industrial firms’ profit continued to improve,” Yu said in a separate statement.

Meanwhile signs of deflation have become more prevalent across China as prices keep declining and demand remains lackluster. This increases pressure on authorities to step up stimulus or risk the economy falling into a downward spiral as consumers and companies hold off purchases or investments in anticipation of prices dropping further.

Beijing is expected to set an ambitious growth goal for 2024, which would be the same as the target this year but is harder to achieve because 2023 had the benefit of a low base of comparison due to coronavirus restrictions a year ago.

China’s consumer prices posted the steepest drop in three years last month while declines in factory-gate costs also accelerated. New orders received by manufacturers contracted to the lowest since June and factories scaled back input purchases for a second straight month, official data showed.

External demand for Chinese goods has also been weak, with a gauge of export prices hitting the lowest since 2009 in October. The declines show the industrial sector’s destocking cycle hasn’t ended, and companies, particularly downstream consumer goods producers, may still be struggling with overcapacity, according to a note by Changjiang Securities over the weekend.

China’s top leaders have indicated they will maintain a pro-growth policy stance next year. The country’s biggest state-owned banks slashed deposit rates last week for the third time this year, paving the way for further lending rate cuts. The move followed the central bank’s record injection of cash into banks via its one-year policy loans earlier this month to encourage lending.