China’s industrial profit up but mired in single-digit growth

BEIJING: Profit growth for Chinese industrial companies accelerated in the first two months of the year, in line with other signs of dynamism in the economy, although the outlook is clouded by the national COVID epidemics -19 and the war in Ukraine.

Profits rose 5.0% from a year earlier, compared to 4.2% in December, the National Bureau of Statistics announced on Sunday (March 27).

Growth from January to February was boosted by higher profits in the energy and materials sectors, thanks to higher prices for raw materials such as crude oil and coal. January and February data are usually combined to smooth out distortions from the Chinese New Year holiday, which may fall in either month.

Downstream, monthly earnings growth at other industrial companies was weighed down by high raw material costs, languishing in single digits since November.

The slightly faster growth in industrial profits was in line with the improvement in industrial production, retail sales and capital investment from January to February, suggesting that the impact of recent policy measures was starting to sink in. feel.

Still, challenges have emerged this year, including China’s worst COVID-19 outbreak since the pandemic began in 2020, driven by the Omicron variant, threatening to disrupt local economies and further curb consumer spending.

“The gap between upstream and downstream profit margins has widened as downstream profit margins have narrowed further,” Goldman Sachs analysts wrote in a note. “We expect the COVID outbreak in several provinces to weigh on industrial earnings in the near term.”

Given the coronavirus outbreaks, policies can be expected to further ease monetary and fiscal measures, they said.

Global upheavals such as the war in Ukraine have also created uncertainty over international supply chains and the potential for even higher commodity and energy prices, ultimately weighing on the results of Chinese companies.

Vice Premier Liu He recently said Beijing would take steps to stimulate the economy in the first quarter and monetary policy would be set to support growth.

To ease financial burdens on small businesses, China has pledged about 1.5 trillion yuan ($240 billion) in value-added tax (VAT) refunds.

The Ministry of Finance said on Thursday that China would waive the 3% VAT levied on certain small businesses, the country’s main source of jobs.

The statistics bureau’s industrial profit data covers large enterprises with annual revenues exceeding 20 million yuan through their core businesses.

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