Industrial sector shows slower profit decline

PUBLISHED : Monday, 01 June, 2009, 12:00am
UPDATED : Monday, 01 June, 2009, 12:00am

Profits at mainland industrial companies saw improvement in April despite a continued decline in overall earnings, data from the National Bureau of Statistics showed yesterday.

It said industrial profits in 22 provinces in the first four months fell 27.9 per cent year on year to 487.3 billion yuan (HK$552.99 billion), slower than the 32.2 per cent first-quarter drop and indicating a revival in April.

During the period, 23 out of 39 sectors reported faster profit growth or narrower losses, the bureau said.

The power sector figured prominently, as it returned to profit, reporting earnings of 2.19 billion yuan at the end of April, in sharp contrast to a 1.37 billion loss in the first quarter. In other words, for April alone, the sector posted a profit of 3.56 billion yuan.

The turnaround was due to lower coal costs and electricity tariff rises in the second half of last year, analysts said.

Last month, China Datang Corp, the mainland's second-biggest power producer, also said it posted its first profit in 14 months in April because of falling coal costs but warned that the operating environment remained tough.

The bureau said other sectors, including non-ferrous metals refining and processing, oil refining and coking coal production, reported better earnings than the three-month level, while steelmaking, chemical and transport equipment manufacturing saw their profits drop narrowly.

The figures coincided with the Ministry of Finance's earlier numbers that showed profits at state-owned enterprises slumped 32.3 per cent in the first four months but had narrowed 4.5 percentage points from the first three months. Earnings also grew 0.5 per cent in April from March.

Merrill Lynch economists Tung Lu and Timothy Bond said in a report that the mainland economy was 'well on track for recovery from April to May' as the government's fiscal stimulus package was gaining traction and exports were stabilising.

However, Yuan Gangming, an economist at the Chinese Academy of Social Sciences, said it was hard to say the worst was over and earnings at industrial companies would further improve in the coming months.

The bureau's figures cover only industrial companies above a certain size, so they exclude many of the smaller firms that have been hit the hardest by the economic slowdown.

The 22 provinces represent 78.6 per cent of industrial profits on the mainland.

'There are still many problems in the government's infrastructure-heavy fiscal stimulus measures. For example, small and medium-sized enterprises still find it difficult to get financing,' said Mr Yuan, who is on a business trip in Xinjiang.

He said many companies in Xinjiang faced cash-flow problems.