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China’s Profit Puzzle

Over the last two years, industrial profits have rebounded sharply in China, following several years of producer price deflation and weaker operating cash flows. In upstream industries, improving margins have been driven by price effects, under supply-side production cuts, and profitability has not generated accelerating output or investment. Downstream industries, however, have also seen improving headline profits, but investment has been stronger in sectors exposed to Chinese consumers or external demand, while higher input costs are slowing investment in energy and raw materials-intensive sectors.

Posted November 20, 2017
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