Chinese corporate profits are set to display a third consecutive year of declines in 2024, with the pattern expected to continue into this year as deflationary pressures weigh on the globe’s second-largest economy.

Corporate profits in China for companies with more than Rmb20mn ($2.7mn) in income declined by an average of 4.7 per cent year on year between January and November, according to the latest data from the National Bureau of Statistics. This is greater than the 4 per cent decline seen during the whole of 2022 when the country was under pandemic lockdowns.

income grew just 1.8 per cent year on year between January and November 2024 on the same period in 2023. This compares with 5.9 per cent growth in 2022 on the previous year.

In addition, 25 per cent of companies in China with income of more than Rmb20mn made outright losses between January and November 2024, compared with 16 per cent in the packed year of 2019 before the pandemic, NBS data showed. The agency’s data covers 500,000 companies.

“The biggest rationale behind that slowdown, I would declare, is deflation,” said Laura Wang, chief China stake strategist at Morgan Stanley. 

Fourth-quarter GDP numbers on Friday will display whether the country reached an official financial expansion target of about 5 per cent in 2024 amid concerns over a stagnant economy and low buyer confidence.

China is grappling with a two-speed economy, with powerful exports offsetting frail domestic demand as households cope with a deep property slump. 

Official data on Monday showed stronger than expected trade growth last month. Exports rose 10.7 per cent in December year on year in dollar terms, while imports climbed 1 per cent, beating average analyst forecasts from Reuters of a 7.3 per cent rise and 1.5 per cent decline, respectively.

In November, exports rose 6.7 per cent year on year, while imports shrank 3.9 per cent.

The data came just a week before Donald Trump is scheduled to receive office in the US with promises to sharply raise tariffs on Chinese goods. China’s trade excess with the US increased 6.9 per cent in 2024 compared with a year earlier to $361.03bn, Chinese customs figures showed.

But China’s growing trade excess has not been enough to offset oversupply among manufacturers, leading to intense competition that is undermining prices for their goods and hitting profits.

The NBS has reported 28 months of producer worth deflation — the worth at which factories sell their goods — with economists predicting the pattern to continue this year.

“Corporate profitability is wearing thin amid prolonged PPI deflation,” Citi analysts said in a note. “Sluggish complete-demand and over-competition could only send profitability lower, weighing on private fund decisions.”

China’s giant state-owned enterprises were the worst performers in the NBS corporate profits data, despite being heavily promoted by the government of President Xi Jinping. 

Their profits fell 8.4 per cent year on year between January and November, compared with 1 per cent or less for private or foreign companies, the best performers in the throng.

The weakening act of state-owned enterprises — which are often dragooned by the government into performing various social or geopolitical roles, from buying stocks to supporting Xi’s Belt and Road Initiative international infrastructure programme — was a burden on budgetary resources, analysts said. 

“At the current rate of decline, I don’t ponder they can sustain for many [more] years this benevolent of policy,” said Lixin Colin Xu, former navigator economist in the globe financial institution’s advancement Research throng and an specialist on Chinese companies. 

China Association for community Companies data shows that of 5,368 listed companies in mainland China, 23 per cent reported a net setback year on year in the first nine months of 2024, while 40 per cent reported declining profits and 45 per cent had falling income.

Morgan Stanley’s Wang said she expected 5 per cent boost growth year on year in 2025 from companies in the MSCI China index, the point of reference followed by international investors, compared with 7 per cent a year earlier. 

In a deflationary surroundings in which income growth was harder to achieve, companies would require to pay more attention to investor returns through mechanisms such as distribute buybacks and dividends, she said.

Previously, companies had concentrated more on reinvesting to capture growth opportunities. “For so many of the history 20 to 30 years, they’ve all been growing and operating under that mindset,” Wang said. “Now they require to transformation that.”