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China industrial profits slump in April as Covid-19 curbs squeeze firms

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 per cent from a year earlier, swinging from a 12.2 per cent gain in March, according to Reuters’ calculations based on National Bureau of Statistics (NBS) data released on Friday (May 27). 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,” senior NBS statistician Zhu Hong said in a statement.
Mr Zhu confirmed the 8.5 per cent 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 per cent – manufacturing firms saw their profits dive 22.4 per cent.

The Covid-19-hit eastern and north-eastern regions suffered profit declines of 16.7 per cent and 8.1 per cent respectively in the first four months, Mr Zhu said. The auto 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 per cent in April, amid a full lockdown and much steeper than the 2.9 per cent drop nationally.

“At present, virus containment in the Yangtze River Delta improved and work resumption is forging ahead steadily,” Mr Zhu said, expecting the Covid-19 impact on industrial firms to be eased gradually.

Industrial firms’ profits grew 3.5 per cent year on year to 2.66 trillion yuan (S$541 billion) for the January to April period, slowing from an 8.5 per cent 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 the economic difficulties in some aspects were worse than in 2020, when the economy was first hit by the Covid-19 outbreak.

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 that the government has shown no sign of relaxing its zero-Covid-19 policy.

The industrial profit data covers large firms with annual revenues of more than 20 million yuan from their main operations.
Source: Reuters

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