Solid industrial profits tamp trade war worries for now

Profits at China’s industrial firms rose sharply in May, maintaining the previous month’s sizzling pace despite signs of slowing momentum in the world’s second-largest economy and an intensifying trade spat with the US.

The Chinese government is trying to walk a tightrope between supporting economic growth and tamping down financial risks, with policymakers freeing up more funds for lending by cutting required reserve levels for banks twice since April.

The latest cut came on Sunday as authorities moved fast to temper any potential drag on growth from the heated Sino-US trade dispute.

Industrial profits rose 21.1 percent to 607.1 billion yuan ($92.00 billion) in May, according to data published by the National Bureau of Statistics (NBS) on Wednesday, compared to 21.9 percent growth in April.

For the first five months, industrial firms notched up profits of 2.73 trillion yuan, an increase of 16.5 percent from a year earlier, versus a 15 percent increase in the January-April period.

The earnings jump in May was driven by price gains and lower costs, statistics bureau official He Ping said in a statement.

He’s comments were backed by data earlier this month showing China’s producer price inflation picked up for a second month in a row in May to 4.1 percent.

In the first five months of the year, profit growth was largely underpinned by heavy industry, He said.

Profits for computer, telecommunications and other electronics rose 1.9 percent year-on-year in the January-May period, recovering from losses over the first four months.

Some analysts say the strong profit growth reflects a recovery in output from an easing in a long-running crackdown on pollution that had shuttered production at many factories.

China’s industrial firms have benefited from a hot property and infrastructure construction market over the past two years, which helped stimulate demand for building materials from steel bars to copper pipes.