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Falling China’s industrial profits puts PBoC in a tough spot

China's industrial profits decreased by 2.3 percent y/y for the year 2015, as compared with previous years gain of 2.2 percent, suggesting that a need for deleveraging in China's industrial sector. Mining sector was hit hard as profits dropped by 58.2 percent y/y, while manufacturing rose by 2.0 percent. The state owned enterprises profits decreased by of 21.9 percent, while profits of privately owned companies increased by 3.7 percent.

The monetary policy will have to ease in order to reduce the borrowing cost for the corporate, however, such a measure will pressurize CNY exchange rate, contradicting the actions of the central bank to stabilize its currency.  China will have to discover a new method to balance its currency stability and monetary policy stance. 

 

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