China’s economy is at two speeds

Chinese company profits fell for the third consecutive year, in 2024. Given deflationary pressures in the world’s second largest economy, the trend is expected to continue this year.

Profits at companies with more than 20 million yuan (4.3 million euros) in turnover fell by an average of 4.7 percent year on year between January and November, according to data from the Bureau of National Statistics.

This value is higher than the decline of 4% recorded throughout 2022, when the coronavirus pandemic covid-19 paralyzed economic activity.

Revenues grew just 1.8% year-on-year between January and November last year, compared to the same period in 2023. This figure compares with growth of 5.9% in 2022 compared to the previous year.

Economists point to this as the main reason for these data, at a time when the excess production by manufacturers and weak consumption internal competition led to intense competition, undermining the prices of products and services, which eroded profits.

Deflation consists of a price reduction over timeas opposed to a rise (inflation).

The phenomenon reflects weakness in domestic consumption and investment and it is particularly serious, since a drop in the price of assets, usually contracted with credit, creates an imbalance between the value of loans and bank guarantees.

Chinese statistics show 28 consecutive months of deflation in producer prices – the price at which factories sell their products – and economists expect the trend to continue this year.

State companies are worse off

According to data from the Office for National Statistics, the gigantic Chinese state-owned companies were the worst performers.

Profits fell 8.4% year-on-year between January and November, compared with 1% or less for private or foreign companies.

Data from the China Association of Public Enterprises shows that of the 5,368 companies listed in mainland China, 23% recorded an annual net loss in the first nine months of 2024, while 40% recorded a decline in profits and 45% had a drop in revenue.

Two-speed economy

However, the Chinese economy is currently moving at two speeds, with strong exportswhich reached a record value in 2024to compensate for weak domestic demand.

While Chinese companies and families spent cautiously on imports, China announced this Monday that its trade surplus reached almost 1 billion dollars last yearwith its exports flooding the world.

China’s General Administration of Customs detailed that the country exported 3.58 trillion dollars worth of goods and services last year, while it imported 2.59 trillion dollars.

The surplus resulting from 990 billion dollars broke the previous record of China, which was 838 billion dollars in 2022.

When adjusted for inflation, China’s trade surplus last year far exceeded any other surplus recorded in the world over the past century.

As , Chinese factories are dominating world production on a scale not seen by any country since the United States after World War II.

China’s rising trade surplus accounted for about half of the country’s economic growth last year. Investment in exports accounted for much of the rest of the growth.

In a report due on Friday, China’s government is expected to say that The country’s economy grew by around 5% last year.