Profits at foreign industrial businesses in China showed no sign of rebound in the first five months of this year even as an easing in COVID-19 restrictions allowed companies to resume production, and improve logistics and sales.
Foreign firms saw a drop of 16.1 percent in their profits during the January-to-May period from a year earlier, a similar contraction to the first four months of the year. In contrast, profits across all industrial companies in China gained 1 percent in the five-month period.
For last month alone, industrial profits fell 6.5 percent from a year earlier, narrowing from April’s 8.5 percent drop, data from the National Bureau of Statistics showed yesterday.
The economy is making a gradual recovery from the worst of the COVID-19 restrictions imposed in recent months to curb outbreaks. High-frequency data tracked by Bloomberg show an improvement in activity this month, although growth likely remained muted.
“April and May are probably the lowest point,” Macquarie Securities head of China economics Larry Hu (胡偉俊) said. “If China’s economy recovers in the second half of the year, there could be some rebound in industrial profits.”
NBS analyst Zhu Hong (朱虹) cited rising costs and operational difficulties as reasons for the continued decline in profits last month.
Measures to stabilize the industrial economy must be implemented “carefully to help relieve company difficulties,” Zhu said in a statement.
Industrial profits at private firms remained weak, dropping 2.2 percent in the first five months of the year, while profits at state-owned enterprises were up 9.8 percent during the period.
The profit recovery for the private sector would likely be slower “given the weaker sentiment broadly and more disruptions to smaller firms from COVID flareups,” NatWest Group PLC chief China economist Liu Peiqian (劉培謙) said.
Last month saw a rebound in industrial output to 0.7 percent, reversing from a drop of 2.9 percent in the previous month. Producer prices weakened as global commodity prices cooled, curbing earnings of upstream firms.
Twenty of the 41 major industrial sectors recorded net income growth that either accelerated from the prior month, or which declined by a narrower margin. Five sectors saw profits reverse from a drop in April to a rise last month.
Declines in net profit for firms in Shanghai, along with Jiangsu, Jilin and Liaoning provinces, all narrowed significantly from a month earlier.
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