PROFITS AT INDUSTRIAL FIRMS KEEP ON FALLING
Data points to slower pace of decline in May but Covid-19 curbs still weigh on factory production, while Beijing vows continued support for recovery
China’s industrial profits continued their steep decline last month, albeit at a slower pace than in April, and the head of its central bank has vowed further backing for the nation’s economic recovery, with stable prices and employment support among the top priorities.
With coronavirus restrictions still weighing on factory production and squeezing manufacturing margins, profits at industrial enterprises fell by 6.5 per cent last month year on year, according to data released by the National Bureau of Statistics yesterday.
“Manufacturing production is still facing many difficulties and the recovery is not solid yet, while the global situation is trending more complicated and severe,” the bureau said. “Industrial profits are still confronted with many uncertainties.”
The industrial profit data covers large firms with annual revenue of more than 20 million yuan (HK$23.4 million) from their main operations. And May’s decline came at a slower pace than the 8.5 per cent drop the month before.
Central bank governor Yi Gang, in an interview with state media yesterday, reiterated oftrepeated sentiment that China’s economy continued to face downward pressure due to the pandemic, along with external shocks, but he also noted how inflation was largely stable.
“This year, we face some downward pressure on growth due to Covid-19 and external shocks, and the monetary policy will continue to be accommodative to support economic recovery in an aggregate sense,” Yi said.
“At the same time, we also emphasise structural policies such as supporting small and medium-sized enterprises and green transitions.”
The still-weak industrial profits came amid initial signs of an economic recovery last month, as Beijing had been doing all it could to stem the risks of a downturn. But the impact of stringent virus controls, including the lockdown of Shanghai, has dragged on the economy in the second quarter of the year and threatens Beijing’s target of “around 5.5 per cent” growth for this year.
Yi’s comments and the latest data release came after an adviser to the People’s Bank of China said at the weekend further economic challenges in the second half warranted more support measures by the central government.
In warning of the economic outlook, adviser Wang Yiming said gross domestic product was likely to grow by around 1 per cent in the second quarter.
“It will be arguably difficult to achieve 7 to 8 per cent growth in the second half of the year to meet the annual growth target of around 5.5 per cent,” said Wang, deputy director of the China Centre for International Economic Exchanges, speaking at a forum hosted by Renmin University.
He suggested raising the deficit rate to increase fiscal spending, which would help expand government investment and stimulate an economic rebound.
The issuance of special treasury bonds, not counted as part of the deficit, was also seen as a possible catalyst for promoting economic growth if the budget was not adjusted, Wang said.
China’s fiscal deficit rate was cut by 0.4 percentage point this year compared with 2021 to 2.8 per cent of GDP, returning to prepandemic levels. In 2020, to counteract the impact of the outbreak on economic growth, the deficit rate was raised to 3.6 per cent, breaching the internationally accepted 3 per cent threshold for the first time.
Wang also warned of additional challenges facing the economy in the coming months, including a decline in the appetite for business risks, people’s growing unwillingness to spend their hard-earned savings in the face of more possible outbreaks, uncertainties in international relations and unemployment risks.
He said the relatively rapid recovery of China’s GDP in 2020 relied on the development of the digital economy, the pull of real estate and the rapid growth of exports.
“This year, however, the momentum in the digital economy is slowing, and valuations of internet companies are on the downside,” Wang said.
In terms of long-term growth drivers, Wang said the key would be to cultivate new driving forces that would continue to push growth forward, including by enhancing the capacity for original innovation, promoting the digital transformation of the manufacturing sector, expanding the middle-income group and helping farmers adapt to the nation’s urbanisation push.
“China’s GDP per capita was US$12,500 last year, a big gap with developed countries, and there is still … a lot of potential for us to catch up and a lot of room to cultivate new dynamic energy in the future,” he said.