Rise in industrial profits lifts outlook
Mainland industrial companies' profits climbed 4.5 per cent year on year last month to 438.9 billion yuan (HK$540.9 billion) on stronger demand - more evidence that the worst may be over for the world's second-biggest economy.
For the first three months, profits were down 1.3 per cent at 1.04 trillion yuan; they fell 5.2 per cent in the January-February period, according to the National Bureau of Statistics.
The bureau, which polled enterprises with annual income of 20 million yuan, said increases in factory-gate prices helped cushion high raw material prices in the first quarter.
It said state-owned firms were hit hard by higher fuel prices, while foreign and Hong Kong enterprises, which rely heavily on exports, were hammered by poor demand overseas, a strengthening yuan and higher costs.
Some economists said the figures supported recent macroeconomic indicators such as the HSBC/Markit Economics' flash purchasing managers' index for this month, which climbed to 49.1 from 48.3 last month, and a bigger-than-expected rise in new bank lending last month, to more than 1 trillion yuan.
They said the improvement reflected the impact of a February cut in banks' reserve requirement ratio, or the proportion of cash banks must set aside rather than lend.
Many analysts expect another cut in the reserve requirement ratio, but it has not happened yet, and economists say the government may be worried that another cut could trigger a rebound in inflation.
Nomura chief economist Zhang Zhiwei said the improvement in industrial profits showed that economic growth could have bottomed at 8.1 per cent in the first quarter and would improve to 8.2 per cent in the second quarter, 8.4 per cent in the third and 8.7 per cent in the fourth.
On a full-year basis, Zhang forecast mainland economic growth at 8.4 per cent, higher than the central government's target of 7.5 per cent.
He said inflation was under upward pressure from a labour shortage, which worsened in the first quarter and was spreading to western and central regions.
China International Capital chief economist Peng Wensheng expects the central government will further ease the monetary regime in the near term by cutting the reserve requirement ratio by half a percentage point and stepping up monetary policy operations. He expects the economy to grow 8.1 per cent this year, against 9.2 per cent last year.
The drop in profits in the ferrous metal industry, which was particularly weak in the first quarter