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  • Employees at a factory in the Shanghai Lingang Industrial Park in Shanghai, China, Apr. 20, 2012.

    Employees at a factory in the Shanghai Lingang Industrial Park in Shanghai, China, Apr. 20, 2012. | Photo: Reuters

Published 27 December 2018

Chinese industrial firms' earnings dropped as the United States trade war piles pressure on the manufacturing sector.

Profits of China's major industrial companies rose 11.8 percent in the first 11 months of 2018, an expansion that fell below the 13.6 percent rise recorded between January and October, China's National Bureau of Statistics (NBS) reported Thursday.

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The fall in profits largely reflects slowing growth in sales and producer prices. "Producer prices, industrial output and orders all point to further pressure on corporate profitability," Nie Wen, an analyst at Hwabao Trust, said, adding that firms' revenues have been hit by shrinking demand.

China's economy expanded at the slowest pace last quarter since 2008, hit by the United States trade war, but is expected to cool further next year.

"We expect the downtrend in industrial profit growth to extend into 2019 given weakening domestic demand, the continued credit downcycle and an escalation in the China-U.S. trade conflict," an analyst from Nomura, a Japanese holding company, said to its clients.

At the beginning of this month, however, U.S. President Donald Trump and China's President Xi Jinping agreed to a 90-day truce, delaying a planned U.S. tariff hike on Jan. 1, as they seek to enter trade negotiations.

The trade war has prompted the Chinese Government to roll out a range of measures to foster demand. At the annual Central Economic Work Conference, that concluded in Dec. 22, China's top leaders said that next year's economic growth will be supported by cutting taxes and increasing liquidity.

On the other hand, earning reductions should be understood by taking into account sectoral performances. For example, profits for oil and natural gas extraction rose 333 percent in the first eleven months of the year, easing off from a 371 percent jump for January to October.

Additionally, with the arrival of winter, industrial output has taken a hit as the Chinese Government intensifies a crackdown on pollution to restrict production in smoke-belching factories.

China's top steelmaking city Tangshan requested, earlier this month, that steel mills cut extra output from Dec. 9 to 31, which is an additional reduction to that which was ordered during the winter heating season.

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