China slows falling industrial profits but prospects remain clouded

BEIJING, May 27 (Reuters) – China’s industrial companies’ profits fell at a slower pace in April, thanks to the improvement in the auto and electronics sectors, but the damage caused by the coronavirus crisis is expected to keep the economy and businesses under pressure for most of this year.

Earnings fell 4.3% yoy last month to 478.1 billion yuan ($ 67 billion), after falling 34.9% in March, the statistical office said on Wednesday.

China’s economy has shown intermittent signs of recovery after its reopening after several weeks of harsh virus containment measures.

However, the consequences of the pandemic, which paralyzed business activity and triggered a record quarterly economic contraction, are expected to reduce profits for many more months as domestic and international demand remains weak.

During the first four months of the year, profits for industrial companies fell 27.4% yoy to 1.26 trillion yuan, compared with a drop of 36.7% in the first three months.

The auto, electrical machinery, and electronics industries posted significant earnings recoveries in April. Twenty-three of the 41 sectors studied recorded growth last month compared to 8 in March.

However, the overall profit outlook is not positive as demand has not recovered, prices for industrial goods remain low, and cost pressure remains high, said Zhu Hong, representative of the statistics office. , it’s a statement.

Recent data on factory-to-trade activity has highlighted a weak outlook for China and the world economy.

Beijing has increased tax and credit relief for companies affected by the virus since February, but has abstained from a massive economic stimulus for fear of rekindling debt risks.

The data showed that Chinese state-owned industrial companies’ profits fell 46.0% yoy in the first four months, a little faster than the 45.5% decline in the quarter ending March.

Downward pressure on prices continues to hurt earnings, particularly in the raw materials and heavy industry sectors, dominated by state-owned companies, said Louis Kuijs of Oxford Economics.

“Given our weak outlook for commodity prices, we expect the profitability of state-owned companies and heavy industry to remain difficult in the coming months,” he said.

Private sector profits declined dramatically, albeit at a slower rate, from 17.2% in January-April, compared to a 29.5% drop in January-March.

“The continuing contraction in industrial profits could weigh on investment in manufacturing, employment and tax revenues, and we expect Beijing to step up policy stimulus measures to deal with the coronavirus shock,” Nomura analysts said in a note. .

(Information from Gabriel Crossley and Roxanne Liu; edited by Shri Navaratnam, translated by Michael Susin in the Gdansk newsroom)