China’s Industrial Profits Surge in September
Even as China battles a fresh outbreak of COVID-19 infections, some good news coming in for its economy with industrial firms’ profits across the nation increasing at a faster pace during the month of September. China’s industrial profits surged by 16.3% YoY in September, at a higher pace than August when they rose by 10.1%.
The news is especially upbeat as manufacturers suffer from high inflationary pressures sending raw material and energy costs soaring and bottlenecks caused by global supply chain disruptions. China is facing a severe coal shortage, causing power shortages that are hampering factory activity.
Between January and September 2021, industrial profits were up by 44.7% from the corresponding period last year. However, the pace of growth has slowed down from the period between January and August when they rose by 49.5% YoY instead.
However, the industrial sector could face challenges in the current quarter as the power shortage crisis worsens even as raw material costs continue to remain high. In addition, the latest outbreak which has forced authorities to impose fresh lockdowns is also likely to affect operations as well as domestic demand.
Impact on the Chinese Yuan
Despite the positive data, the Chinese yuan is trading under pressure against the US dollar. At the time of writing, USD/CNH is trading at around $6.38.
The CNH faces considerable risks to the downside on account of uncertainties plaguing China’s economic recovery. After posting a strong rebound from the pandemic initially, the world’s second largest economy is expected to see its pace of recovery weaken as a result of soaring commodity costs and raw material prices, as well as due to the latest outbreak of COVID-19 across parts of the country.
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