China’s industrial profits declined at a slower pace in May than the previous month as activity in key manufacturing hubs gathered pace despite the overhang of Covid-19 lockdowns that limited factory output and margins.
Profits shrank 6.5% year-on-year, less than the 8.5% decline in April, showed data released by the National Bureau of Statistics (NBS) on Monday.
Despite relaxing Covid restrictions and gradual business resumption in major cities such as Shanghai last month, the weak property market and fears of any recurring waves of infections have cast a shadow over factory production and raised doubts over the flagging recovery in the world’s second-largest economy.
Industrial firms’ profits grew 1.0% year-on-year to 3.44 trillion yuan ($514 billion) in January-May, slowing from the 3.5% increase in the first four months, the NBS data showed.
Over the same five month period, revenue of industrial firms grew 9.1% to 53.16 trillion yuan, slowing from the 9.7% growth in the first four months.
Profits at manufacturing firms shrank 10.8% in the first five months, extending the slide of 8.3% in the first four months.
Signs of Recovery
China’s economy showed signs of recovery in May after slumping the previous month, but consumption was still weak and underlined the challenge for policymakers amid the persistent drag from strict Covid-19 curbs.
Despite the uptick in overall industrial output, China’s factory-gate inflation cooled to its slowest pace in 14 months in May, depressed by weak demand for steel, aluminium and other key industrial commodities.
Industrial output in the commercial hub of Shanghai, which sits at the heart of manufacturing in the Yangtze River Delta, fell for a second month by 27.6% in May from a year earlier.
The capital Beijing, which has been grappling with its most serious outbreak since the pandemic began, also saw its industrial output down 12.5% in the first five months, worse than China’s overall 3.3% growth during that period.
China’s cabinet in May announced a slew of measures covering fiscal, financial, investment and industrial policies to wrestle with the Covid-induced damage to its economy.
The policies underscore the government’s determination to prop-up its economy, but analysts say a 5.5% target for growth will be hard to achieve if China sticks with its costly zero-Covid containment strategy.
The country vowed this month to ramp up support for the economy and roll out more policy steps but said it would refrain from issuing excessive money.
The industrial profit data covers large firms with annual revenues of over 20 million yuan from their main operations.
- Reuters with additional editing by Jim Pollard