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China's headline CPI belies week domestic demand with 1H2024 corporate revenue growth at two-decade low

Cherlyn Yeoh
Cherlyn Yeoh • 2 min read
China's headline CPI belies week domestic demand with 1H2024 corporate revenue growth at two-decade low
Despite food price inflation in August, China’s deflationary trends continue; corporate revenue growth in 1H2024 falls to 20-year low. Photo: Bloomberg
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China’s headline Consumer Price Index (CPI) inflation has increased to +0.6% y-o-y in August, reflecting a rise from +0.5% y-o-y in July, while headline Producer Price Index (PPI) inflation fell to -1.8% y-o-y in August from -0.8% y-o-y in July.

According to a report by Goldman Sachs, food price inflation has increased as a result of a decrease in supply from adverse weather conditions in August, affecting fresh vegetables and fruits in particular.

However, both non-food price inflation and core inflation have decreased in August, a sign of China’s continuing weak domestic demand. It is expected that PPI deflation will reduce slowly, with CPI inflation to remain relatively low in the next few months.

A report by Goldman Sachs aggregating over 6,000 Chinese list companies’ financial statements in 2Q2024 and 1H2024 shows that offshore led A-shares with 1H2024 profit growth coming in at 12% for the MSCI China Index and 0% for the CSI300, while revenue growth fell to a two-decade low in 1H2024 due to dis-inflationary pressures.

The net margin rose 0.3 percentage points compared to 1H2023, which can be attributed to consumer, technology, media and telecommunications (TMT), as well as insurance but asset turnover and leverage continue to dip, lowering ROE.

The cash balance was at RMB17 trillion ($3.12 trillion) as of 1H2024, 20% of the total market cap and over 480 companies announced interim dividends for the first time in the past five years.

See also: China shores up property sector, signals more spending is coming

Total dividends and buybacks are set to reach RMB3 trillion this year, reaching a record high, Goldman Sachs says.

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