The profits of Chinese industrial enterprises with an annual revenue of at least CNY20 million grew 57% in April year-on-year, sending the profits in the first four months of 2021 up 1.06 times compared with 2020, the National Bureau of Statistics (NBS) said. Growth in the first four months was positive and steady, but the resurgence of coronavirus abroad and external conditions are adding uncertainty, Zhu Hong, Senior Statistician at NBS said in a statement. Bulk commodity prices keep rising, adding pressure on companies in the middle and lower parts of the industry chain, Zhu pointed out. Growth in the profits of industrial enterprises above a designated size in April fell 35.3 percentage points compared with March. The rising prices of raw materials are putting heavy pressure on mid-range parts, machinery and equipment makers, as well as auto components and electronic producers. Some downstream industry participants saw profits drop by 10% to 15%, the Global Times learned. However, experts said that China, as an important global consumer of bulk commodities, is inevitably affected by imported prices, but the impact can be offset by a stronger yuan.
All 41 industrial sectors saw increasing profits during the January-April period year-on-year, with the profits of 10 sectors more than doubling. Compared with the first four months of 2019, a total of 30 industrial sectors reported profit increases.
A stronger yuan will boost the purchasing power of domestic companies, especially the large electronic companies that rely on overseas sources for parts, Zhang Jianping, Director of the Center for Regional Economy at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times. Lv Jinzhong, Director of the Investigation and Research Department of the Shanghai branch of the People's Bank of China (PBOC) suggested that in order to offset the import effect, China should follow a prudent monetary policy, pay attention to the balance of trade, and enhance its exchange rate flexibility, including the appropriate appreciation of the yuan. Driven by the U.S. Fed's monetary easing, the central parity rate of the yuan reached 6.37 against the U.S. dollar on May 27, a nearly 3% rise compared with early April.
But a stronger yuan could also put pressure on exports, a mainstay of the Chinese manufacturing sector, along with higher commodity prices, Liu Xuezhi, Senior Macroeconomic Analyst at Bank of Communications (BoCom), told the Global Times. A stronger yuan could also raise the risk of speculation and asset price bubbles. From January to April, the profits of consumer goods makers rose 45.3% year-on-year. In this sector, the profits of agricultural and food-processing firms, and producers of wine, beverages, tea and other industries grew by double digits on average in the past two years. Profits of industrial enterprises in May are likely to improve, the Global Times reports.
