Economic Indicators

China’s industrial profits slump in April as COVID curbs squeeze firms

FILE PHOTO: A person looks towards cranes in front of the skyline of the Central Business District (CBD) in Beijing, China, October 18, 2021. REUTERS/Thomas Peter

BEIJING (Reuters) -Profits at China’s industrial firms fell at their fastest pace in two years in April as high raw material prices and supply chain chaos caused by COVID-19 curbs squeezed margins and disrupted factory activity.

Profits shrank 8.5% from a year earlier, swinging from a 12.2% gain in March, according to Reuters’ calculations based on National Bureau of Statistics (NBS) data released on Friday. The slump is the biggest since March 2020.

“In April, frequent COVID-19 outbreaks were widespread in some regions, creating big shocks to the production and operations of industrial firms and leading to a drop in their profits,” Zhu Hong, senior NBS statistician, said in a statement.

Zhu confirmed the 8.5% decline in April in the statement.

While high bulk commodity prices drove up the profit growth of some upstream industries – with the mining sector soaring 142% – manufacturing firms saw their profits dive 22.4%.

The COVID-hit eastern and northeastern regions suffered profit declines in the first four months of 16.7% and 8.1%, respectively, Zhu said. The autos factory sector dragged down manufacturing profits by 6.7 percentage points in April.

Industries have been hit hard by stringent and widespread anti-virus measures that have shut factories and clogged highways and ports.

Industrial output from the commercial hub of Shanghai, located at the heart of manufacturing in the Yangtze River Delta, nosedived 61.5% in April, amid a full lockdown and much steeper than the 2.9% drop nationally.

“At present, virus containment in the Yangtze River Delta improved and work resumption is forging ahead steadily,” Zhu said, expecting the COVID impact on industrial firms to be eased gradually.

Industrial firms’ profits grew 3.5% year-on-year to 2.66 trillion yuan ($395.01 billion) for the January-April period, slowing from an 8.5% increase in the first three months, the statistics bureau said.

The world’s second-largest economy saw very weak activity last month as exports lost momentum and the property sector wobbled.

On Wednesday, Premier Li Keqiang acknowledged the weak growth and said economic difficulties in some aspects were worse than in 2020 when the economy was first hit by the COVID-19 outbreak.

“We should strive to ensure reasonable economic growth in the second quarter, lower the unemployment rate as soon as possible, and keep economic operations within a reasonable range,” Li was quoted as saying at the meeting.

China recently cut its benchmark lending rates for corporate and household loans for a second straight month and lowered a key mortgage reference rate for the first time in nearly two years.

While policymakers have pledged more support for the faltering economy, many analysts have downgraded their full-year growth forecasts, noting the government has shown no sign of relaxing its “zero-COVID” policy.

Liabilities at industrial firms jumped 10.4% from a year earlier at end-April, slightly slower than 10.5% growth as of end-March.

The industrial profit data covers large firms with annual revenues of over 20 million yuan from their main operations.

($1 = 6.7340 Chinese yuan)

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