China's Industrial Profit In Biggest Drop This Year, Shanghai Composite Sinks To 3-Year Low

Profits at China's major industrial enterprises fell in July for the fourth successive month and by the most this year, adding to fears about a sharp slowdown in the world's second-largest economy and sending benchmark Shanghai Composite Index to its lowest level in three years.

In a report released Monday, China's National Bureau of Statistics said profits at major industrial firms, or those with annual revenues of more than 20 million yuan ($3.2 million), slipped 5.4 percent last month from a year earlier to 366.8 billion yuan. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May.

Chinese firms have been hurt by lackluster global demand as well as weak domestic consumption.

Some of the worst-hit sectors were ferrous metals and chemical raw materials, which saw profits decline year-on-year 60.8 percent and 21.3 percent, respectively.

Investors showed their pessimism by dropping the Shanghai Composite Index 1.74 percent to 2,055.71 points -- its lowest point since February 2009.

The industrial sector is a key driver of China's growth, and the weak data may result in further stimulus measures.

China's economy expanded at an annual rate of 7.6 percent in the second quarter, the slowest pace of growth in almost three years.

But China doesn't seem to have found the bottom investors have been waiting for.

Recent government data showed the producer price index fell 2.9 percent in July from a year earlier, widening from a 2.1 percent decline in June.

The latest sign of a weaker manufacturing economy came on Thursday, when the HSBC Flash China Manufacturing PMI -- an early version of the official purchasing managers' report out on Sept. 1 -- fell sharply to 47.8 in August, with new export business declining at the sharpest pace since March 2009. The preliminary reading of manufacturing activity marks the 10th straight month the index has been below 50, signaling contraction.

According to data released earlier this month, China's exports rose by just 1 percent in July from a year earlier, down from 11.3 percent growth in June.

Monday's data add pressure on the government to step up policy easing to reverse a slowdown that may extend into a seventh quarter.

On an inspection of Guangdong province, an export center in the southeast, China's Premier Wen Jiabao said China needs targeted measures to promote steady export growth, which will help the nation meet its annual economic goals, the official Xinhua News Agency reported.

There will still be a lot of problems and uncertainties in exports going forward, Xinhua cited Wen as saying during a two-day visit to the southern province that ended Aug. 25. The third quarter is a crucial period for realizing full-year targets on export growth.