AlwaysFree: Loss in China’s April Industrial Profits Mitigated, Outlook Still Bleak

In April, China’s industrial profits posted a mitigated loss as the automobiles and electronics sectors improved. However, the outlook is still bleak as the economy and business would still be under pressure from the damage brought in by the coronavirus pandemic.

On Wednesday, the country’s statistics bureau said that year-on-year, industrial earnings dropped by 4.3% year-on-year to CNY478.1 billion (USD67 billion). The reading was an improvement from the 34.9% reading in March.

For the first four months of the year, profits of industrial companies slumped by 27.4% year-on-year to CNY1.26 trillion (USD176.6 billion), compared to the 36.75% plunge in the January-March period.

China’s economy has shown blotchy signs of recovery a few weeks after reopening the activities. 

Profit recoveries were seen in the automobiles, special-purpose equipment, electrical machinery, and electronics industries with 23 out of 41 sectors surveyed posted growth in April, from eight in March.

However, the country’s state-owned industrial companies posted a dip in earnings, by 46.0% year-on-year in the first four months. It was down from the March quarter’s 45.5% decline.

Likewise, profits in the private sector also declined sharply, but at a slower pace. In the January-April period, the decline was by 17.2% while in the January-March period it was 29.5%.

Industrial goods prices are still low while the pressure from the costs is still high.

The outlook is still bleak even if Beijing has boosted tax and credit relief since February for companies hit by the coronavirus. However, the country has refrained from massive economic stimulus on concerns of reigniting debt risks.

Analyst Louis Kuijs of Oxford Economics commented, “Downward pressure on prices continues to hurt profits, particularly in the commodity and heavy industry sectors dominated by state-owned enterprises (SOEs). In the coming months, profitability will still struggle.”

Likewise, Nomura analysts noted that the manufacturing investment, employment, and fiscal revenues could still be weighed down by the continued industrial profits contraction. They expected Beijing to spur on the policy stimulus.

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