Profits of China’s major industrial firms shrank at a slower pace in June thanks to supportive government measures to ease burdens on companies, though softening demand continued to squeeze margins. Analysts said the recovery trend is not yet solid amid still-weak demand and a downward trend in factory-gate prices, reinforcing hopes of stronger policy support to bolster the economy. Industrial firms with an annual revenue of at least CNY20 million reported total profits of CNY719.76 billion in June, an 8.3% fall from a year ago, after a 12.6% decline in May, the National Bureau of Statistics (NBS) reported. In the first half, industrial firms’ profits fell 16.8% year-on-year to CNY3.39 trillion, narrowing from the 18.8% drop recorded in the first five months. Sun Xiao, Statistician at the NBS, mainly attributed the easing dip in profits to the steady recovery in industrial production and improved profit margins, which were a result of sustained policy efforts to promote steady economic growth. There was an improvement in June’s profit margin, which came in at 6.44%, up 0.27 percentage point from the previous month. For the first six months, the profit margin stood at 5.41%, up from 5.19% between January and May, the NBS data showed.
Zheng Houcheng, Chief Macro Economist at Yingda Securities, said the latest industrial profit data show that enterprises continue to be affected by a combination of unfavorable factors, such as the downward trend of the producer price index, while the improved industrial production and profit margins contributed to the easing dip in profits. China’s value-added industrial output grew 4.4% in June from a year earlier after a 3.5% rise in May, while the producer price index was down 5.4% from a year earlier in June after an 4.6% annual contraction in May.
Looking ahead, Zhou Maohua, Analyst at China Everbright Bank, said industrial profits will likely continue to improve with sustained recovery in market demand, the likelihood that industrial product prices will bottom out, strong policy support and steadily declining production costs. Zhou said that over 70% of the 41 surveyed industrial sectors saw improvements in profits during the January-June period, pointing to a steady recovery in domestic demand and improvement in the overall operations of industrial sectors. During the first half, profits recorded by industrial firms that provide electricity, heat, gas and water grew 34.1% year-on-year, while profits recorded by mining firms and manufacturing companies shrank 19.9% and 20%, respectively.
Profits of equipment manufacturing enterprises rose 3.1% on a yearly basis during the January-June period, 20.8 percentage points higher than in the first quarter, according to the NBS. Zhou said 29 industrial sectors reported declines in profits in the first six months. Looking to the second half, he said the government will likely step up macro-economic policy support in terms of fiscal, monetary and industrial policies to shore up growth, with a key focus on increasing support for weak links in the real economy and key emerging sectors, the China Daily reports.
