China’s industrial profits rise for first time since March as coronavirus curbs ease, but concerns remain
- Profits at China’s industrial firms rose by 0.8 per cent in June from a year earlier, while for the first half of the year, profits were up by 1 per cent
- But while the overall figure was positive, profits for many firms are still struggling, with foreign industrial businesses down by 13.9 per cent in the first six months of the year
Profits at China’s industrial firms bounced back to growth in June after two months of declines, underpinned by the resumption of activity in major manufacturing hubs, but fears of a coronavirus resurgence have cast a shadow over future factory output.
Profits in June grew by 0.8 per cent from a year earlier, rebounding from a 6.5 per cent decline in May, National Bureau of Statistics (NBS) data showed on Wednesday.
Buoyed by easing pandemic curbs and government stimulus, June’s data shows industrial firms are gradually coming back from painful supply chain disruptions in the second quarter.
The recovery in profit growth was driven by a pickup in demand, said Zhou Maohua, an analyst at China Everbright Bank, adding it led to strong profit growth in the upstream sector.
Profitability in the middle and downstream manufacturing sectors, as well as producers of electricity, heat, gas and water, also improved, he said.
NBS Senior Statistician Zhu Hong said that as the pandemic was effectively controlled and the industrial chain further recovered, industrial firms’ efficiency improved markedly.
Profits of industrial firms in the virus-hit Yangtze River Delta region rose by 4.6 per cent in June following a 17.8 per cent slump in May.
Tesla achieved its highest monthly output at its Shanghai plant in June since it opened in 2019.
The profit rebound was encouraging, but Zhu said profit growth remained weak and the external environment was becoming more complicated and grim.
“While costs keep rising, some firms are facing hardship in production and operation as well as potential losses,” said Zhu.
China’s economy braked sharply in the second quarter, highlighting the colossal toll on activity from widespread lockdowns that hit domestic consumption and business confidence.
Industrial firms saw their combined profits rise by 1 per cent to 4.27 trillion yuan (US$631.1 billion) in January-June from the same period a year earlier. That matched the 1 per cent growth pace in the first five months, the data showed.
Liabilities at industrial firms jumped by 10.5 per cent at the end of June, also remaining the same as that as of the end of May.
Currently, risks of a virus resurgence and the return of strict measures to stamp out infections across China pose challenges to factory production and recovery in the world’s second-largest economy.
Earlier this month, the port city of Tianjin, home to factories linked to Boeing and Volkswagen and other areas tightened restrictions to fight new outbreaks.
Meanwhile, policymakers are scrambling to avert other problems such as a debt crisis in the property sector from spilling into the broader economy in a politically sensitive year.
The industrial profit data covers large firms with annual revenues of over 20 million yuan from their main operations.