China’s May industrial profits slump again

Profits at China’s industrial firms shrank at a slower pace in May following a sharp fall in April, as activity in major manufacturing hubs resumed, but Covid-19 restrictions still weighed on factory production and squeezed factory margins. Profits fell 6.5per cent from a year earlier, less than the 8.5per cent decline in April, according to data released by the National Bureau of Statistics (NBS) on Monday.

May’s improvement was driven by surging profits in the coal mining and oil and gas extraction sectors, as the Russia-Ukraine war sparked a rally in global commodity prices. However, profits in the manufacturing sector dropped 18.5per cent in May as equipment manufacturing improved significantly, Zhu Hong, senior NBS statistician, said in a statement. April profits were down a sharper 22.4per cent.

“Overall, the performance of industrial firms has shown some positive changes, but it should be noted that the year-on-year growth of industrial profits continued to fall, with rising cost pressure and difficulties in production and operation,” Zhu said, adding that the foundation for recovery was not firm. With production gradually improving from last month, the profit declines of industrial firms in Covid-hit Shanghai, eastern province of Jiangsu and northeastern provinces of Jilin and Liaoning all narrowed by more than 20 percentage points, Zhu said.

The gap between profit margins of upstream and downstream sectors narrowed in May, analysts at Goldman Sachs said in a note, adding the divergence of profits across various sectors and firms remained significant.

Some factories restarted operations in cities such as Shanghai following lockdowns but the weak property market and fears of any recurring waves of infections have cast a shadow over factory production and raised doubts over the flagging recovery in the world’s second-largest economy.

Industrial firms’ profits grew 1.0per cent year-on-year to 3.44 trillion yuan ($514 billion) in January-May, slowing from the 3.5per cent increase in the first four months, the NBS data showed.

Profits at auto manufacturing firms shrank 37.5per cent in the first five months, while that for the ferrous metal smelting sector dived 64.2per cent.