(Bloomberg) — Profits at large Chinese industrial companies declined in 2023, reflecting widespread corporate pain stemming from falling prices and weak demand both at home and overseas.

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Industrial profits at large-scale Chinese companies decreased 2.3% last year from 2022, according to data published by the National Bureau of Statistics on Saturday. 

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That annual number contrasted with an end-of-year surge, after December profits soared 16.8% from the same month in 2022. That was a slower pace than November’s 29.5% increase. Both months reflected a rebound in output from a year earlier, when nationwide Covid outbreaks shuttered factories in many major cities.

While China hit its conservative target of about 5% growth last year, an expected post-pandemic boom failed to materialize as a property market slump dragged on the world’s second-largest economy. That’s spurred Beijing to ramp up measures to aid growth, without flooding the system with so-called big stimulus.

Industrial profits have been improving since last summer, a sign many companies are approaching the end of a destocking cycle. In another positive sign, industrial output expanded 6.8% in December, the fastest pace since 2021. A year-on-year decline in producer prices also slowed from November, reducing the hit to profitability.   

Total industrial profits are determined by changes in output, prices and profit margins. Industrial producers increased their margins over the course of 2023, official data show, as they cut costs per unit of revenue. 

Signs of deflation have become more prevalent across China, casting doubt on whether the surge in industrial profits can be sustained. 

Authorities still face pressure to keep stimulus coming. Economists are expecting further cuts to the reserve ratio over the rest of the year, in addition to modest policy-rate reductions. The People’s Bank of China has signaled more targeted stimulus to guide money toward specific sectors of the economy.

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