China's industrial profits fell for a third consecutive month in July, as businesses struggled in the face of subdued demand and persistent factory-gate deflation despite policy measures to help shore up the economic recovery.
Exports beat expectations last month but a slew of underwhelming indicators have kept pressure on Beijing to roll out more stimulus.
The government has introduced measures to bolster domestic consumption and curb price wars, but these efforts have yet to produce significant results amid ongoing deflationary pressures and a prolonged housing downturn.
Profits at China's industrial firms fell 1.5% in July from a year earlier, following a 4.3% slump in June, while a 1.8% profit drop in the first half eased slightly to a 1.7% slide in the January-July period, National Bureau of Statistics (NBS) data showed on Wednesday.
A trade truce between China and the United States has helped to ease tensions between the two economic powers but analysts say the uncertainty for businesses in the absence of a durable deal is undermining confidence.
"The escalation of tariffs this year could exacerbate what is already heavy cost competition amid overcapacity concerns. As such, much of the onus remains on policy support to boost domestic demand this year to help offset this drag," said Lynn Song, ING's chief economist for Greater China.
Highlighting the effects of the bruising cost competition, top Chinese solar manufacturers including Tongwei Co (600438.SS), JA Solar (002459.SZ) and Jinko Solar (688223.SS) reported wider losses in the first half on falling prices.
Anhui Jianghuai Automobile (600418.SS), a major state-owned automaker, swung to a net loss of 772.8 million yuan in the first half from a profit of 300.8 million yuan in the year-ago period.
Beijing has ramped up infrastructure spending and consumer subsidies, alongside steady monetary easing, though weak business and consumer confidence has dragged on demand and the broader economy. China's July bank loans unexpectedly contracted for the first time in 20 years.
There needs to be "increased policy flexibility and predictability," NBS statistician Yu Weining said in a statement, citing external uncertainties, insufficient domestic demand as well supply and demand imbalance in some sectors.
State-owned firms reported a 7.5% fall in profits in the first seven months. Private-sector firms saw profits increase 1.8% while foreign firms recorded a 1.8% rise, the data showed.
Industrial profit figures cover firms with annual revenue of at least 20 million yuan ($2.80 million) from their main operations.
($1 = 7.1551 Chinese yuan)
