China industrial profits and revenue: China industrial profits and revenue returned to sequential growth in August

Overview

This macro data note examines China's August industrial profit and revenue release. Goldman Sachs highlights a return to sequential growth in both measures, alongside a rotation in year-on-year profit growth toward upstream sectors and stable aggregate margins.

Core views

China's industrial profits rose 4.9% year on year in August, slowing from 11.0% in July. However, Goldman Sachs' seasonally adjusted, non-annualized calculation shows profits increasing 0.6% month on month after a 3.1% decline in July. The report therefore characterizes the August outcome as a sequential improvement despite the slower year-on-year growth rate. The composition of profit growth shifted toward upstream industries. Downstream profits grew just 0.5% year on year in August, down from 9.6% in July, whereas upstream profit growth accelerated to 19.8% from 12.7%. Goldman Sachs identifies coal mining and dressing, non-ferrous metal smelting and pressing, and petroleum, coking and nuclear fuels as the main contributors. The National Bureau of Statistics also cited electronics as contributing 9.7 percentage points to the 15.7% industrial-profit growth recorded over January through August, followed by raw-material manufacturing at 6.2 percentage points. Industrial revenue increased 7.4% year on year in August, up from 6.5% in July. On the same seasonally adjusted sequential basis used for profits, revenue rose 0.8% after falling 3.8% in July. Despite the improvement in revenue and profits, the report says overall profit margins—total profits divided by revenue—were broadly unchanged in August on a 12-month average basis, while upstream margins edged up slightly.

Analysis framework

The report compares August industrial data with July on both year-on-year and Goldman Sachs seasonally adjusted sequential, non-annualized measures. It then separates profit performance between upstream and downstream industries, identifies sector contributors, and evaluates margins as total profits divided by revenue on a 12-month average basis.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Upstream-versus-downstream profit-growth comparison

  The report separates industrial profits by position in the production chain to show that August's improvement was led by upstream sectors while downstream profit growth slowed.

• Industry AnalysisVolume-price decomposition

  Profit-margin analysis using total profits divided by revenue

  The report uses the ratio of total profits to revenue, assessed on a 12-month average basis, to judge whether profitability changed alongside revenue growth.

Key data

• Industrial profits+4.9% yoy; +0.6% sequentially, seasonally adjusted and non-annualizedAugust; compared with +11.0% yoy and -3.1% sequentially in July.
• Industrial revenue+7.4% yoy; +0.8% sequentially, seasonally adjusted and non-annualizedAugust; compared with +6.5% yoy and -3.8% sequentially in July.
• Downstream profit growth+0.5% yoyAugust, slowing from +9.6% yoy in July.
• Upstream profit growth+19.8% yoyAugust, accelerating from +12.7% yoy in July.
• Electronics contribution to industrial-profit growth9.7ppNBS contribution to 15.7% industrial-profit growth in January-August.
• Raw-material manufacturing contribution6.2ppNBS contribution to 15.7% industrial-profit growth in January-August.

Impact & implications

The report indicates that August industrial activity improved sequentially in both profits and revenue, but the year-on-year profit picture became more dependent on upstream sectors. Stable overall margins suggest that the reported improvement did not coincide with a broad change in aggregate industrial profitability.