China’s May industrial profits slump again despite easing of COVID restrictions

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BEIJING, June 27 (Reuters) – Profits at Chinese industrial companies fell at a slower pace in May after a sharp decline in April as activity in key manufacturing hubs picked up, but COVID-related restrictions -19 have historically weighed on factory output and squeezed factory margins.

Profits fell 6.5% from a year earlier, less than the 8.5% drop in April, according to data released by the National Bureau of Statistics (NBS) on Monday.

May’s improvement was fueled by rising profits in the coal mining and oil and gas extraction sectors, as the Russian-Ukrainian war sparked a rise in global commodity prices .

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However, profits in the manufacturing sector fell 18.5% in May as equipment manufacturing improved significantly, Zhu Hong, senior statistician at the SNB, said in a statement. April profits fell 22.4%.

“Overall, the performance of industrial enterprises showed some positive changes, but it should be noted that the annual growth of industrial profits continued to decline, with increasing pressure on costs and difficulties in production and operation. “, said Zhu, adding that the fundamentals for the recovery were not solid.

As output gradually improves from last month, lower profits for industrial enterprises in Shanghai, eastern Jiangsu province and northeastern provinces of Jilin and Liaoning have shrunk by more than 20 percentage points, Zhu said.

The gap between profit margins of upstream and downstream sectors narrowed in May, Goldman Sachs analysts said in a note, adding that earnings divergence between different sectors and companies remained wide.

Some factories have restarted operations in cities like Shanghai after the lockdowns, but a weak housing market and fears of recurring waves of infections have cast a shadow over factory output and raised doubts about a shaky recovery from the second Mondial economy.

Industrial company profits rose 1.0% year-on-year to 3.44 trillion yuan ($514 billion) in January-May, a slowdown from the 3.5% increase in the past four first months, according to BES data.

Profits for auto manufacturing companies fell 37.5% in the first five months, while those in the ferrous metal smelting sector fell 64.2%.

During the same five-month period, industrial enterprise revenue rose 9.1 percent to 53.16 trillion yuan, compared with 9.7 percent growth in the first four months.

China’s economy showed signs of recovery in May after slumping the previous month as industrial production resumed, but consumption remained weak and underscored the challenge for policymakers amid the continued drag on restrictions COVID-19 restrictions. Read more

Despite rising overall industrial output, China’s factory gate inflation hit its slowest pace in 14 months in May, depressed by weak demand for steel, aluminum and other key industrial products. Read more

As the domestic COVID situation improves and oil prices are not expected to rise significantly, Zheng Houcheng, director of Yingda Securities Research Institute, expects industrial profit growth to be better in June despite business cost pressures.

China’s cabinet in May announced a series of measures covering fiscal, financial, investment and industrial policies to combat the damage caused by COVID to its economy.

The policies underscore the government’s determination to support its economy, but analysts say a 5.5% growth target will be difficult to achieve if China sticks to its costly zero-COVID lockdown strategy.

The country pledged this month to step up its support for the economy and roll out more policy measures, but said it would refrain from issuing excessive money.

Liabilities of industrial companies increased by 10.5% compared to the previous year at the end of May, against a growth of 10.4% at the end of April.

Industrial profit data covers large companies with annual revenues of more than 20 million yuan from their core businesses.

($1 = 6.6922 Chinese Yuan)

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Reporting by Ella Cao, Ellen Zhang and Ryan Woo; Editing by Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.

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