Annual profits at Chinese industrial firms extended a double-digit decline in the first five months as softening demand squeezed margins, boosting hopes for more policy support to bolster a stuttering post-Covid economic recovery.
The 18.8% year-on-year plunge in profits added to a 20.6% drop in January to April and added to evidence of an economy that lost steam on many fronts in May, including retail sales, exports and property investment. when the youth unemployment rate climbed to a new high of 20.8 percent.
Last month alone, industrial profits fell by 12.6 percent compared to the previous year, according to data from the National Bureau of Statistics (NBS) released on Wednesday. Profit fell by 18.2 percent in April.
“The still slow recovery in industrial profits points to persistent difficulties facing business operations,” said Wu Chaoming, deputy director of the Chasing International Economic Institute.
Wu said the corporate struggles strengthen the case for more policy measures to help companies.
Automakers, offering some hope of a turnaround, saw profit double in May from a year earlier, although the jump partly reflected a poor performance last year when COVID-19 restrictions took a heavy toll on business.
“As the external environment becomes more and more complicated and severe, domestic demand appears to be still insufficient, weighing on the further recovery of industrial profits,” NBS statistician Sun Xiao said in an accompanying statement, noting that the basis for the recovery in industrial profits is still not fixed.
Foreign firms saw profits fall 13.6 percent in the January-May period, while private sector companies posted a 21.3 percent drop, according to a breakdown of the data.
Profits fell in 24 of the 41 major industry sectors during the period, with the oil, coal and fuel refining industry posting the sharpest drop of 92.8 percent.
The uneven recovery in the world’s second-largest economy prompted S&P Global, Goldman Sachs and other global agencies in recent weeks to cut their forecasts for China’s growth this year.
Many economists expect policymakers to take more supportive measures to stabilize the economy as it faces pressure at home and softening demand in its main overseas markets.
To shore up a faltering recovery, China last week cut its key credit benchmarks for the first time in 10 months. It also unveiled a 520 billion yuan package of rebates for the purchase of new energy vehicles by the end of 2027.
Premier Li Qiang said in his keynote speech at the Summer Davos Forum in Tianjin on Tuesday that China will implement more effective policy measures to expand domestic demand.
China’s economic growth in the second quarter will be higher than in the first quarter, Li said, adding that it is expected to reach the 2023 growth target of around 5 percent.
Still, the government has taken a cautious approach to reviving the economy amid lingering concerns about local government debt and other long-term risks.
The industrial profit figures include firms with annual revenues of at least 20 million yuan ($2.77 million) from their core operations.
China will release second-quarter GDP growth data in mid-July.
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