BEIJING, June 27 (Reuters) – Profits in China’s industrial enterprises fell at a slower pace in May after a sharp drop in April as activity resumed in major manufacturing centers, but restrictions on COVID-19 still weighed on factory production and reduced factory margins.
Profits fell 6.5% from a year earlier, less than the 8.5% drop in April, according to data released Monday by the National Bureau of Statistics (NBS).
The improvement in May was driven by rising profits in the coal mining and oil and gas extraction sectors, as the war between Russia and Ukraine caused a rise in world commodity prices.
Register now for FREE and unlimited access to Reuters.com
Sign up
However, profits in the manufacturing sector fell 18.5% in May, as equipment manufacturing improved significantly, NBS senior statistician Zhu Hong said in a statement. April earnings were down 22.4%.
“Overall, the performance of industrial enterprises has shown some positive changes, but it should be noted that year-on-year growth in industrial profits continued to decline, with increasing cost pressure and difficulties in production and operation,” Zhu said. , and added. that the foundations for recovery were not solid.
With the gradual improvement in production over last month, the fall in profits of industrial enterprises in Shanghai, eastern Jiangsu Province and the northeastern provinces of Jilin and Liaoning, fell by more than 20 percentage points, said Zhu.
The gap between the profit margins of the upstream and downstream sectors narrowed in May, Goldman Sachs analysts said in a note, adding that the divergence in profits between various sectors and companies remained significant.
Some factories resumed operations in cities such as Shanghai after the blockades, but the weak real estate market and fears of any recurring wave of infections have overshadowed factory production and raised doubts about the recovery of the second largest economy. great of the world.
Profits of industrial enterprises grew 1.0% year-on-year to 3.44 trillion yuan ($ 514 billion) between January and May, slowing from a 3.5% increase in the first four months. , showed NBS data.
The profits of car manufacturing companies fell by 37.5% in the first five months, while that of the ferrous metal smelting sector fell by 64.2%.
Over the same five-month period, industrial enterprises’ revenue grew 9.1% to 53.16 trillion yuan, slowing from 9.7% growth in the first four months.
China’s economy showed signs of recovery in May after falling from the previous month as industrial production revived, but consumption remained weak and underscored the challenge for policymakers amid drag persistent from the strict braking of the COVID-19. Read more
Despite rising overall industrial production, China’s factory inflation cooled in May at its slowest pace in 14 months, depressed by weak demand for steel, aluminum and other key industrial commodities. Read more
With the improvement in COVID’s domestic situation and the price of oil is unlikely to rise significantly, Zheng Houchheng, director of the Yingda Securities Research Institute, expects industrial profit growth to be better in June despite pressures of costs on companies.
China’s cabinet announced in May a series of measures covering fiscal, financial, investment and industrial policies to combat COVID-induced damage to its economy.
Policies underscore the government’s determination to boost its economy, but analysts say a 5.5% growth target will be difficult to achieve if China continues with its costly zero-COVID containment strategy.
The country promised this month to increase support for the economy and implement more policy measures, but said it would refrain from issuing excessive money.
The liabilities of industrial companies increased by 10.5% compared to the previous year at the end of May, compared with a growth of 10.4% at the end of April.
Industrial profit data cover large enterprises with annual revenues of more than 20 million yuan from their main operations.
($ 1 = 6.6922 Chinese Yuan)
Register now for FREE and unlimited access to Reuters.com
Sign up
Report by Ella Cao, Ellen Zhang and Ryan Woo; Edited by Jacqueline Wong
Our standards: the principles of trust of Thomson Reuters.