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China: Industrial profits slump continues in August – Nomura

FXStreet (Delhi) – Research Team at Nomura, see more signs of Chinese economy weakening, as their industrial profits declined by 8.8% y-o-y in August from -2.9% in July which has resulted in year-to-date profit growth of -1.9% y-o-y from -1.0% in July, owing to smaller investment gains, deeper price deflation and RMB depreciation.

Key Quotes

“The deterioration in profit growth continued to be weighed down by 1) the equity market selloffs and 2) deeper price deflation, and more recently 3) the depreciation of RMB.

“The producer price index fell deeper into negative territory in August, which resulted in a y-o-y reduction in profits of RMB156.6bn in August, RMB20.2bn more than July’s fall.”

“The RMB’s depreciation since 11 August has also increased financing costs of external-oriented enterprises, with financial expenditure growth in industrial enterprises up 23.9% y-o-y from -3.0% in July.”

“The negative industrial profit growth reinforces our call for fiscal stimulus to play a larger role in boosting growth in H2, and monetary policy to remain accommodative with one more 50bp reserve requirement ratio cut in Q4.”

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