Decline in China's industrial profits slows in April, outlook still gloomy

BEIJING (Reuters) - Profits at China’s industrial firms fell at a slower pace in April, helped by improvements in automobiles and electronics, but the damage wrought by the coronavirus crisis is set to keep the economy and businesses under pressure for most of this year.

Workers wearing face masks following the coronavirus disease (COVID-19) outbreak load steel products for export to a cargo ship at a port in Lianyungang, Jiangsu province, China May 27, 2020. China Daily via REUTERS

Earnings fell 4.3% year-on-year to 478.1 billion yuan ($67 billion) last month, after plunging 34.9% in March, the statistics bureau said on Wednesday.

China’s economy has shown patchy signs of recovery as it reopens after several weeks of tough virus containment measures.

But fallout from the pandemic, which paralysed business activity and triggered the first quarterly economic contraction on record, is expected to crunch earnings for many more months as demand at home and abroad remains weak.

For the first four months, industrial firms’ profits fell 27.4% year-on-year to 1.26 trillion yuan, compared with a 36.7% slump in the first three months.

Automobiles, special-purpose equipment, electrical machinery and electronics industries notched up significant recoveries in profits in April. Twenty three out of 41 sectors surveyed posted growth last month versus eight in March.

However, the overall profit outlook is still not optimistic as demand has still not recovered, industrial goods prices remain low, and pressure from costs are still high, Zhu Hong, an official at the statistics bureau, said in a statement.

Recent data from factory activity to trade have underscored a weak outlook for China and the global economy.

Beijing has stepped up tax and credit relief for virus-ravaged companies since February, but it has refrained from massive economic stimulus for fear of rekindling debt risks.

Earnings at China’s state-owned industrial firms were down 46.0% year-on-year for the first four months, slightly faster than a 45.5% decline in the quarter ending March, the data showed.

Downward pressure on prices continues to hurt profits, particularly in the commodity and heavy industry sectors dominated by state-owned enterprises (SOEs), said Louis Kuijs, of Oxford Economics.

“Given our subdued outlook for commodity prices, we expect the profitability of SOEs and heavy industry to continue to struggle in the coming months,” he said.

Private sector profits declined sharply although at a slower pace of 17.2% in January-April, from January-March’s 29.5% fall.

“The continued contraction in industrial profits could weigh on manufacturing investment, employment and fiscal revenues, and we expect Beijing to step up policy stimulus measures to cope with the COVID-19 shock,” said Nomura analysts in a note.

Reporting by Gabriel Crossley and Roxanne Liu; Editing by Shri Navaratnam