SHANGHAI: Profits at foreign industrial businesses in China showed no sign of rebound in the first five months of the year, even as an easing in Covid restrictions allowed companies to resume production and improve logistics and sales.
Foreign firms saw a drop of 16.1% in their profits during the January-to-May period from a year earlier, a similar contraction to the first four months of the year. In contrast, profits across all industrial companies in China gained 1% in the five-month period.
For May alone, industrial profits fell 6.5% from a year earlier, narrowing from April’s 8.5% drop, data from the National Bureau of Statistics (NBS) showed.
The economy is making a gradual recovery from the worst of the Covid restrictions imposed in recent months to curb outbreaks. High-frequency data tracked by Bloomberg show an improvement in activity in June, although growth likely remained muted.
“April and May are probably the lowest point,” said Macquarie Securities head of China economics Larry Hu. “If China’s economy recovers in the second half of the year, there could be some rebound in industrial profits.”
NBS analyst Zhu Hong cited rising costs and operational difficulties as reasons for the continued decline in profits in May.
Measures to stabilise the industrial economy must be implemented “carefully to help relieve company difficulties,” Zhu said in a statement.
Industrial profits at private firms remained weak, dropping 2.2% in the first five months of the year, while profits at state-owned enterprises were up 9.8% during that time frame.
The profit recovery for the private sector will likely be slower “given the weaker sentiment broadly and more sruptions to smaller firms from Covid flareups,” said NatWest Group Plc chief China economist Peiqian Liu.
May saw a rebound in industrial output to 0.7%, reversing from a drop of 2.9% in the previous month. Producer prices weakened as global commodity prices cooled, curbing earnings of upstream firms.
Twenty of the 41 major industrial sectors recorded net income growth that either accelerated from the prior month, or which declined by a narrower margin. Five sectors saw profits reverse from a drop in April to a rise in May.
Declines in net profit for firms in Shanghai, along with Jiangsu, Jilin and Liaoning provinces, all narrowed significantly from a month earlier.
Beijing has made frequent pledges to boost growth. Last week, President Xi Jinping reaffirmed the country’s 2022 growth target of about 5.5%, saying that the government would “strengthen macro-policy adjustment and adopt more effective measures” to strive to meet its goals.
Economists expect hitting that target to be a significant challenge, though, with those polled by Bloomberg in a recent survey expecting full-year growth to reach just over 4% this year.
- Bloomberg
Created by Tan KW | Mar 29, 2024
Created by Tan KW | Mar 29, 2024
Created by Tan KW | Mar 29, 2024