Economic Watch: China's industrial profits rebound, pressure persists

Profits of China's major industrial firms rebounded in the second quarter (Q2) as business activities continued to pick up, but the recovery still faces uncertainties due to the global spread of COVID-19.

In Q2, profits of industrial companies with annual revenue of more than 20 million yuan (about 2.86 million U.S. dollars) rose by 4.8 percent year on year, reversing the 36.7-percent decline in Q1, the National Bureau of Statistics (NBS) said on Monday.

In June alone, major industrial firms saw their profits rise by 11.5 percent to 666.55 billion yuan, widening by 5.5 percentage points from that in May, said NBS senior statistician Zhu Hong.

The quickened growth in industrial production and sales, as well as the moderate drop in the factory-gate prices of industrial products, led to the expansion of profits in June, according to Zhu.

In Q2, profits in 37 of the 41 industrial sectors surveyed showed improvements compared with that in Q1, with 25 of them reporting profit growth, according to the NBS.

Equipment and high-tech manufacturing were among the sectors that saw the most visible recovery, with profits in high-tech manufacturing expanding by 34.6 percent year on year, rebounding from a 17.1-percent decrease in Q1.

The decline of profits in raw material manufacturing in Q2 narrowed sharply due to the progress in infrastructure projects, and higher prices of relevant products, said Zhu.

Despite the recovery, enterprises still face difficulties in their production and operations as the COVID-19 epidemic has dampened demand, Zhu said, noting that the profits of major industrial firms declined by 12.8 percent in the first half of the year (H1).

Noting that the global spread of COVID-19, as well as trade uncertainties, may dampen the continued recovery in industrial profits, Zhu called for full implementation of policies to shield enterprises against COVID-19 fallouts, and consolidating the upturn of the industrial economy.

Much applauded by companies nationwide, tax and fee reductions so far this year have topped 1 trillion yuan as the country has introduced more value-added tax relief, social security burden alleviation, and fee slashing moves since the outbreak of COVID-19.

Meanwhile, China has called on the financial system to concede 1.5 trillion yuan from their profits this year to benefit companies, and work to ensure that funds arrive directly at their doorsteps.

With economic growth and market demand gradually back to pre-epidemic levels, profits of industrial enterprises will maintain a recovery trend in H2, said CITIC Securities, one of China's leading brokerage firms.

The company predicted continued policy support for the real economy as the international situation remains complex and grim.