Chinese industrial firms' profit growth hits six-month high

China's vast manufacturing sector grew at the fastest pace in eight months in May, blowing past expectations and easing concerns about an economic slowdown even as risks from trade tensions with the US point to a bumpy ride ahead.

BEIJING • Profits earned by Chinese industrial firms in April rose at their fastest pace in six months, data from the National Bureau of Statistics (NBS) showed, as factories benefited from higher prices and strong demand.

Profits last month rose 21.9 per cent year-on-year to 576 billion yuan (S$121 billion), the quickest since October.

The data suggests China's industrial sector is still seeing solid growth momentum despite curbs on pollution and rocky trade relations with the United States.

Last month's rebound was helped by lower comparison figures for April last year, higher factory prices and stronger demand, NBS industrial division head He Ping said in a statement.

It was a significant improvement over March's 3.1 per cent growth, the slowest in over a year and which government officials had blamed on the timing of the Chinese New Year holiday.

The higher April data should help ease concerns of slowing momentum in China's economy as the country implements tougher pollution controls on "smokestack" industries and cash-strapped regional governments cut back on big investment projects, curbing demand for building materials.

Profit growth for Chinese industrial firms has softened from last year's strong pace as factory gate price gains weaken. In the first four months of last year, profits rose by 24.4 per cent, while gains for the first four months of this year came to 15 per cent.

China's producer price inflation picked up to 3.4 per cent last month from March, but was much lower than the 6.4 per cent in the year-ago period.

Weaker profit growth suggests companies may be reluctant to invest and hire new staff, while making it harder for debt-laden firms to service their debt, especially state-owned enterprises that account for the bulk of China's high leverage.

A Reuters analysis showed that debt growth for Chinese companies has slowed to the lowest rate in over a decade, but companies have also seen profit margins squeezed to their lowest level in two years.

April economic data had shown signs of slowing momentum as investment growth touched a near 20-year low and retail sales growth weakened.

Despite stronger-than-expected first-quarter economic growth, economists polled by Reuters still expect a gradual slowdown to around 6.5 per cent this year from 6.9 per cent last year, as rising borrowing costs weigh on consumption and investment.

Beijing continues to call for tighter controls on risky investments and speculation in the property sector, but does not want to cut off funding to companies in the "real economy" such as manufacturing firms, which are a key source of jobs.

There have also been signs that policymakers have moved to a slightly looser stance as they look to ensure growth does not slow too much, while also keeping financial risks under control.

Last month's rebound was led by the steel, chemicals and automobile industries, as profits for iron and steel processing firms rose 260 per cent.

No industrial sectors recorded year-on-year losses over January to April, the data showed.

But earnings in the computer and telecommunications sector fell 5.3 per cent over the four months, though it was a slight improvement from an 11 per cent decline in the first quarter. Liabilities of industrial firms rose 6.1 per cent year-on-year as of end-April, according to NBS.

Profits at China's state-owned firms rose 26.2 per cent to 627 billion yuan for the January-April period, compared with a 23.1 per cent rise in the first quarter.

The data includes companies with annual revenues of more than 20 million yuan from their main operations.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 29, 2018, with the headline 'Chinese industrial firms' profit growth hits six-month high'. Print Edition | Subscribe