EARNINGS at China’s industrial firms shrank for a second straight month in December, putting pressure on policymakers to support industries hurt by slowing prices and weak factory activity amid a protracted U.S.-Sino trade spat.

The downbeat data point to more troubles ahead for the country’s vast manufacturing sector already struggling with a decline in orders, job layoffs and factory closures as China’s economic growth slows to its weakest in nearly three decades.

China’s economy expanded 6.6 percent in 2018 and growth is set to slow further this year as the government’s efforts to reduce debt risks depress the property market and curb credit flows to the private sector, while a crackdown on pollution dents industrial activity.

Industrial profits in December fell 1.9 percent from a year earlier to 680.8 billion yuan (US$100.9 billion), weighed down by weak factory-gate prices and soft demand, the National Bureau of Statistics said yesterday. This is on top of a decline of 1.8 percent in November, the first contraction in profits in nearly three years.

“As far as the future trend is concerned, it is quite obvious that it will continue to decline because the [producer price index] has apparently turned negative last month, and when PPI has turned negative, the profits of industrial enterprises will go down,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai, adding that the structure of corporate profitability will also start to change.

“Profits at mid and downstream sectors may stabilize while the upstream sectors will face immense pressure.”

Profits at chemical, coal mining and non-ferrous metal sectors all slowed significantly in December, the data showed.

For the full year, profits rose 10.3 percent to 6.64 trillion yuan in 2018, easing from 2017’s robust pace of 21 percent.

Upstream sectors such as oil extraction, coal and metal mining still commanded the lion’s share of profit gains last year, but analysts say that as industrial prices slow further or even shrink, profitability will come under pressure.

Tang said that if large-scale tax cuts promised by the government could be rolled out in time, however, it would help put a floor on declining industrial profits in the second half.

A survey from the State planner this month showed activity at 2,500 small and mid-sized firms continued to contract in the fourth quarter last year despite a flurry of supportive government policies. (SD-Agencies)