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China's industrial profits shrink in April, add to pressure on economy

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Profits for China's industrial firms dropped in April on slowing demand and manufacturing activity, suggesting the previous month's rebound may have been a one-off and adding pressure for policymakers to step up support for a cooling economy.

[BEIJING] Profits for China's industrial firms dropped in April on slowing demand and manufacturing activity, suggesting the previous month's rebound may have been a one-off and adding pressure for policymakers to step up support for a cooling economy.

Industrial profits declined 3.7 per cent year-on-year to 515.4 billion yuan (S$102.8 billion)in April, according to data published by the National Bureau of Statistics (NBS) on Monday. That compared with a 13.9 per cent surge in March, which was the biggest gain in eight months.

For the first four months, industrial firms notched up profits of 1.81 trillion yuan, down 3.4 per cent from a year earlier, compared with a 3.3 per cent drop in the first quarter this year.

The profit decline in April was due to the timing of the government's planned cuts in value-added tax that kicked in at the start of April, bringing forward pent-up demand for some industrial goods and boosting profits in March, said Zhu Hong of the statistics bureau said in a statement accompanying the data.

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Earnings also were hit by a higher base comparison for last year, Mr Zhu said.

The contraction in profits was in line with the weak growth in industrial output in the January-April period.

Weak fixed-asset investment has also stoked worries about demand as have new factory orders, which remained sluggish in April, while exports have fallen on a sharp drop in shipments to the United States.

China's trade frictions with the United States escalated suddenly this month, reversing the apparent progress in dialogue seen earlier this year, as the world's two biggest economies slapped more tariffs on each other's imports.

Profits in telecommunications and electronic equipment manufacturing, which are more vulnerable to US tariffs than other product classes, declined 15.3 per cent in Jan-April, worsening from a 7.0 per cent drop in the first three months.

Beijing has beefed up countermeasures this year to support the economy, pledging billions of dollars in additional tax cuts and infrastructure spending. China's central bank also announced a cut in three phases in the reserve requirement ratio for regional banks to reduce small companies' financing costs.

Upstream sectors like oil extraction still saw the lion's share of profit gains with faster growth in January-April. The decline in profits earned by steel mills and chemical plants moderated from the first three months.

China's steel output climbed to a monthly record in April, bolstered by firm demand in downstream projects.

Liabilities of industrial firms rose 5.5 per cent year-on-year as of end-April, the NBS said.

The data includes companies with annual revenues of more than 20 million yuan from their main operations.

REUTERS