SHANGHAI (Reuters) – Profits at China’s industrial firms rose for the first time in sixth months in May, suggesting the country’s economic recovery is gaining traction and brightening the outlook for manufacturing investment and jobs.
China’s national bureau of statistics said profits at China’s industrial firms in May rose 6% year-on-year to 582.3 billion yuan ($82.28 billion), according to a statement on Sunday.
The rebound followed a 4.3% fall in April, and is its sharpest monthly gain since March 2019.
Economic activity in China is clearly improving after the lifting of tough virus containment measures that led to weeks of near paralysis. But the recovery has been uneven and demand at home and abroad remains sluggish amid concerns of a second wave of infections and a global recession.
Despite May’s earnings growth, “market demand remains relatively weak amid the epidemic, and sustainability of the profit recovery deserves further observation,” Zhu Hong, senior statistician at the statistics bureau said in the statement.
Earnings for Chinese factories were hit by the sharpest factory-gate price drop in more than four years recorded in May, while exports slipped again, erasing a transient gain in April.
Futures prices for steel, which have surged this year on a government push for more infrastructure projects, fell last week as rising steel production and lean demand from downstream users stoked worries about oversupply.
For the first five months of 2020, industrial firms’ profits fell 19.3% from the same period last year to 1.84 trillion yuan.
May’s profit growth was aided by significant profit recoveries in key industries including oil refinery, power, chemicals and steel.
For example, the oil refinery sector recorded a profit of 11.6 billion yuan in May, up 8.9% year-on-year, swinging from a loss of 21.8 billion yuan the previous month. Power sector profits grew 10.9% in May, compared with a decline of 15.7% in April.
Zhu also attributed May’s profit growth to easing cost pressures, improving profit margins, positive impact from policy stimulus and much higher investment returns.
Earnings at China’s state-controlled industrial firms were down 39.3% on an annual basis for January-May, versus a 46.0% fall in the first four months, the statistics bureau data showed.
Private sector profits fell 11% in the first five months, narrowing from January-April’s 17.2% slump.
Liabilities at industrial firms rose 6.6% on year at end-May, compared with a 6.2% increase as of end-April.
(Reporting by Samuel Shen, Emily Chow and Roxanne Liu; editing by Jonathan Oatis & Simon Cameron-Moore)