Improved industrial profits in April show domestic growth remains robust, experts say
China's improving industrial profits in April, bolstered mainly by high profit margins in the steel, chemical and auto industries, show that the world's second-largest economy remains resilient, analysts say.
The nation's industrial companies made 576 billion yuan ($90 billion; 77 billion euros; ￡67 billion) in profits in April, up by 21.9 percent year-on-year - the fastest pace since October, according to figures released on May 27 by the National Bureau of Statistics.
In March, the growth rate was 3.1 percent year-on-year. The combined growth of profits in the first four months was 15 percent.
The improved profitability in April was mainly bolstered by higher industrial output and sales, rebounding factory inflation, improving profit margins in sectors such as steel, chemical and auto, and a low comparison base in the same month of last year, He Ping, a senior official of the NBS, said in a statement.
In terms of sectoral performance, profits in coal-mining and related sectors rose by 15.5 percent year-on-year, while those in oil and natural gas more than tripled. The profits of companies that process oil, coal and other fuel products rose by 19.6 percent year-on-year, and chemical manufacturing registered a 23 percent growth in profits.
Profits of nonferrous metal processing enterprises dropped by 15.8 percent, while those in the computer, telecommunications and other electronic equipment sectors fell by 5.3 percent, according to the NBS.
The data suggest China's industrial sector remains on track, despite the country's efforts to curb pollution and its recent trade disputes with the United States, and that earlier concerns about significant economic slowdown have proved to be unfounded, analysts say.
Industrial output rose by 7 percent year-on-year last month, and the producer price index, which measures factory-gate inflation, rose by 3.4 percent in the same month, up by 0.3 percentage point compared with March. However, the slowing growth of retail sales and fixed-asset investment triggered concerns about a slowing economy.
"The notable recovery in industrial enterprise profitability in April indicates that China's domestic growth remains resilient," Eva Yi, senior economist at China International Capital Corp in Hong Kong, said in a research note.
Guo Lei, chief macroeconomics analyst of GF Securities, says, "The April profit growth, the fastest since October, has shown that it is an overreaction to be pessimistic about the economy."
Previously, there were expectations of a cooling of the economy in the second quarter, but the April profit data showed that such expectations are not well-founded, he says.
"Resilience will be the most important characteristic of the (Chinese) economy this year," Guo adds.
Zhao Wei, an analyst at Changjiang Securities, says that as production picks up in the second quarter, the economy may become more resilient than in the first quarter. Moreover, a possible rise in oil prices would push up domestic producer price inflation, which, combined with improving economic activity, will continue to raise industrial profitability in the second quarter.
