Profits at industrial firms in China plunged in the first two months of this year as factories had yet to fully recover from a COVID-19-induced slump and prices continued to decline.
Industrial profits in the January-to-February period dropped 22.9 percent from a year earlier, the Chinese National Bureau of Statistics said yesterday.
For the entirety of last year, profits declined 4 percent from the previous year.
Photo: AFP
“Even though industrial production rebounded, market demand hadn’t recovered completely,” bureau statistician Sun Xiao (孫曉) said in a statement accompanying the data.
The decline in revenue was greater than the drop in costs, weighing on gross corporate profits, Sun added.
Foreign firms continued to lag behind others, with profits plummeting 35.7 percent in the first two months from the same time a year earlier. Profits fell 9.5 percent for all of last year.
At private firms, profits fell 19.9 percent in the January-to-February period, while those at state-owned enterprises declined 17.5 percent.
The plunge in profits came despite data earlier this month showing that industrial output rebounded in the first two months of the year to 2.4 percent after COVID-19 restrictions were scrapped and as a wave of infections subsided.
However, producer deflation deepened last month as commodity costs softened, a sign that some factories are cutting prices, resulting in falling revenue and smaller profits.
“Firms were not able to pass on the higher costs to downstream users as demand has yet to recover fully,” Societe Generale SA greater China economist Michelle Lam (林雪潔) said.
Yesterday marked the first time China reported profit data this year. The first two months of the year are typically combined to account for distortion effects because of the Lunar New Year holiday, which can fall in either month. Officials have not released single-month data for profits since June last year.
The economic recovery still faces headwinds from higher-than-expected unemployment and a continued slump in real-estate investment — as well as an uncertain global environment that might weigh on demand for Chinese exports, which are already under pressure.
While China’s industrial production will “rebound,” Australia and New Zealand Banking Group Ltd senior China strategist Xing Zhaopeng (邢兆鵬) said. “The prices will continue to be impacted by global central banks’ tightening monetary policies.”
The decline in industrial profit growth is expected to “narrow markedly going forward,” Xing added.
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