China's industrial profits tumble, deepening economic gloom
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[June 28, 2023] BEIJING
(Reuters) -Annual profits at China's industrial firms extended a
double-digit decline in the first five months as softening demand
squeezed margins, reinforcing hopes of more policy support to bolster a
stuttering post-COVID economic recovery.
The 18.8% year-on-year slump in profits came on top of the 20.6%
contraction in January-April, and added to evidence of an economy that
was losing steam on many fronts in May including retail sales, exports
and property investment as youth jobless rate scaled a fresh high of
20.8%.
Last month alone, industrial earnings contracted by 12.6% from a year
earlier, according to data from the National Bureau of Statistics (NBS)
released on Wednesday. Profits were down 18.2% in April.
"The still slow recovery in industrial profits pointed to sustained
difficulties facing business operations," said Wu Chaoming, deputy
director of the Chasing International Economic Institute.
Wu said the corporate struggles strengthen the case for more policy
measures to help companies.
Offering some hope of a turnaround, auto manufacturers saw a doubling in
year-on-year profit in May, although the jump partly reflected the poor
performance last year when COVID curbs took a heavy toll on business.
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"As the external environment becomes increasingly complicated and
severe, domestic demand still appears to be insufficient, weighing on
further recovery in industrial profits," said NBS statistician Sun Xiao
in an accompanying statement, noting that the foundation for a revival
in industrial profits is still not solid.
Foreign firms recorded a 13.6% decline in earnings in January-May, while
private-sector companies posted a 21.3% slide, according to a breakdown
of the data.
Profits sank for 24 of 41 major industrial sectors during the period,
with the petroleum, coal and fuel processing industry reporting the
heftiest slump at 92.8%.
Chinese stocks were largely in the red in the morning session, but pared
some losses in afternoon trading, leaving the main indexes mixed.
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![](../images/062823PIX/busine2.jpg)
An employee works on the production line
at Jingjin filter press factory in Dezhou, Shandong province, China
August 25, 2022. REUTERS/Siyi Liu
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MORE POLICY SUPPORT
The patchy recovery in the world's second-biggest economy has
prompted S&P Global, Goldman Sachs and other global agencies to
ratchet down their China growth forecasts for this year in recent
weeks.
Many economists expect policymakers to deliver more support measures
to stabilise the economy as it faces pressure at home and softening
demand in its major overseas markets.
To shore up the faltering rebound, China last week cut its key
lending benchmarks for the first time in 10 months. It also unveiled
a 520 billion yuan package of purchase tax break on new-energy
vehicles through the end of 2027.
In his keynote speech to the Summer Davos Forum in Tianjin on
Tuesday, Premier Li Qiang said China will roll out more effective
policy measures to expand domestic demand.
China's second-quarter economic growth will be higher than that in
the first quarter, Li said, adding that it's expected to achieve the
2023 growth target of around 5%.
Still, the government has taken a cautious approach to reviving the
economy amid lingering concerns over local government debt and other
longer-term risks.
Industrial profit numbers cover firms with annual revenues of at
least 20 million yuan ($2.77 million) from their main operations.
China will release its second-quarter GDP growth data in mid-July.
($1 = 7.2182 Chinese yuan renminbi)
(Reporting by Qiaoyi Li and Ryan WooEditing by Shri Navaratnam)
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