Stay informed with free updates
Simply log in to Chinese Business and Finance myFT summary — delivered straight to your inbox.
China’s corporate profits are set to show a third straight year of decline in 2024, a trend expected to continue this year as deflationary pressures weigh on the world’s second-largest economy.
Corporate profits in China for companies with more than 20 million Rmb ($2.7 million) in revenue fell by an average of 4.7 percent year-on-year between January and November, according to the latest data from the National Bureau of Statistics. That’s more than the 4 percent decline seen throughout 2022 when the country was under lockdown due to the pandemic.
Revenues rose just 1.8 percent year-on-year between January and November 2024 compared to the same period in 2023. That compares to 5.9 percent growth in 2022 year-over-year.
In addition, 25 percent of companies in China with revenue of more than Rmb20 million made direct losses between January and November 2024, compared with 16 percent in all of 2019 before the pandemic, NBS data showed. The agency’s data covers 500,000 companies.
“The biggest reason behind that slowdown, I would say, is deflation“said Laura Wang, chief China equity strategist at Morgan Stanley.
Fourth-quarter GDP data on Friday will show whether the country has met its official economic growth target of around 5 percent in 2024 amid concerns about a stagnant economy and low consumer confidence.
China is grappling with a two-speed economy, with strong exports offsetting weak domestic demand as households grapple with a deep housing slump.
Official data released on Monday showed that trade was stronger than expected last month. Exports rose 10.7 percent in December on a year-over-year basis in dollar terms, while imports rose 1 percent, beating the average Reuters analysts’ forecasts of a 7.3 percent rise and a 1.5 percent decline, respectively.
In November, exports increased by 6.7 percent on an annual basis, while imports decreased by 3.9 percent.
The data came just a week before Donald Trump is scheduled to take office in the US promises a sharp increase in tariffs on Chinese goods. China’s trade surplus with the US widened 6.9 percent in 2024 from a year earlier to $361.03 billion, China customs data showed.
But China’s growing trade surplus has not been enough to offset the oversupply among manufacturers, leading to intense competition that is undercutting the prices of their goods and reducing profits.
NBS reported 28 months of producer price deflation — the price at which factories sell their goods — economists predict the trend will continue this year.
“Corporate profitability is weakening due to prolonged PPI deflation,” Citi analysts said in a note. “Weak final demand and excessive competition could only reduce profitability, weighing on private investment decisions.”
China’s giant state-owned enterprises were the worst performers in the NBS’s corporate profit data, despite being heavily promoted by President Xi Jinping’s government.
Their profits fell 8.4 percent year-on-year between January and November, compared with 1 percent or less for private or foreign companies, the best performers in the group.
The weakening performance of state-owned enterprises — which the government often forces to perform various social or geopolitical roles, from buying stocks to supporting Xi’s Belt and Road Initiative international infrastructure program — has been a strain on fiscal resources, analysts say.
“At the current rate of decline, I don’t think I can hold out for many [more] years of this kind of policy,” said Lixin Colin Xu, a former lead economist at the World Bank’s Development Research Group and an expert on Chinese companies.
Data from the China Association of Public Enterprises shows that of 5,368 listed companies in mainland China, 23 percent reported an annualized net loss in the first nine months of 2024, while 40 percent reported a decline in profits and 45 percent a decline in revenue.
Morgan Stanley’s Wang said she expects 5 percent annual profit growth in 2025 from companies in the MSCI China index, a benchmark followed by international investors, compared with 7 percent a year earlier.
In a deflationary environment where revenue growth has been harder to achieve, companies should pay more attention to returns to investors through mechanisms such as share buybacks and dividends, she said.
Previously, companies focused more on reinvestment to take advantage of growth opportunities. “In the last 20 to 30 years, everyone has grown and worked under that mindset,” Wang said. “Now they have to change that.”
