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China’s industrial sector made 21% more profit this September than last – the biggest uptick in almost two years – after government policies fanned fresh flames under the country’s factories.
What does this mean?
Chinese manufacturers have long competed on price – at the expense of their profit margins. Those cheap prices have kept foreign shoppers interested, but they’ve also created deflation, with factory prices falling for three years straight.
So, determined to reverse years of learned behavior, the Chinese government intervened. It ordered state-owned firms to limit their discounts, encouraged mergers and buyouts in crowded sectors, and rewarded producers for focusing on quality over quantity.
🔺 That’s helped: the industrial sector’s output rose 6.5% last month, pulling up profit.
Mind you, with consumer spending and property investment still weak, China’s prices are still on the slide – for now.
🔺 Investors sent the CSI 300 Index up about 1% on Monday, as well as propping up some Hong Kong-listed Chinese companies.
▶ And Goldman Sachs sees more money in China’s future. The big bank expects corporate profit to rise 12% over the next three years. Layer on market-friendly policies and steady sales from abroad, and Goldman predicts that China’s benchmark stock index will rise by a third between now and the end of 2027.
▶ Of course, changeable tariff policies could scare investors away in the short term – but Goldman’s analysts see those dips as opportunities to buy shares for less.
The bigger picture: From “made in China” to “funded by China.”
Chinese banks have quadrupled their use of their local currency (renminbi) for overseas lending and bond investments in the last five years. So now, even countries from Kenya to Kazakhstan are borrowing in renminbi. That’s important: by financing projects and trading in renminbi, China can reduce its exposure to the US dollar – and its volatility.
