Chinese industrial profits slumped at their fastest pace in nearly three and a half years in April, the last month before the sudden escalation of the trade war with the United States, underscoring the continuing downturn in pressure on the world’s second largest economy and the challenge faced by policymakers to keep economic growth on track.
Industrial profits stood at 515.39 billion yuan (US$74.7 billion) last month, down 3.7 per cent compared to a year earlier, the largest percentage decline since December 2015, according to data released by the National Bureau of Statistics (NBS) on Monday.
Industrial profit growth has decelerated since April 2018, and has been negative since November except for March, with the figures for January and February combined due to the Lunar New Year holiday.
The April drop is a sharp deterioration from the 13.9 per cent gain in March, suggesting that the unexpected strength in the economy in the first quarter was merely temporary and that its overall momentum remains weak.
The NBS attributed the decline in April to a high base from a good level of profits a year ago and lower demand last month after a strong rise in March. Data suggests that a high base will also affect the year-on-year calculations in each of the next four months.
“Demand for some industrial products had been unleashed in March due to the cut in the value-added tax rate that took effect on April 1,” said senior NBS statistician Zhu Hong.
The rebound in March was driven by growth in both production and sales, which translated into higher profits, the NBS said.
The average growth rate of industrial profits was 5.0 per cent in March and April, Zhu said.
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Demand for some industrial products had been unleashed in March due to the cut in the value-added tax rate that took effect on April 1.
For the first four months of the year, overall industrial profits fell 3.4 per cent to 1.81 trillion yuan (US$262 billion), a slight deterioration from the 3.3 per cent drop in the first quarter of 2019, according to the government data.
Profits of state-owned industrial enterprises decreased 9.7 per cent year-on-year in the January-April period to 570.43 billion yuan (US$83 billion), compared with the 4.1 per cent profit rise in private-sector industrial companies.
Among all 41 industrial sectors surveyed by the NBS, profits in 14 sectors decreased in the first four months of the year, while profits rose in 27 sectors.
The largest profit drop was in the oil, fuel and other fuel processing sector, with profits declining 50.2 per cent in April from a year earlier.
Profits in the car manufacturing sector slumped 25.9 per cent, as China’s car sales fell 15 per cent year-on-year in April, the 10th consecutive monthly decline.
Other April economic data has also shown the problems faced by the Chinese economy, with both industrial production and retail sales growth declining sharply in last month and missing analyst expectations.
And a return of the tit-for-tat tariff war with the US this year has only further darkened the outlook of the Chinese economy, putting further pressure on Beijing to continue, and possibly expand, fiscal stimulus and monetary easing measures to support economic growth.
Li Chao, an analyst with brokerage house Huatai Securities, predicted on Monday that the Chinese economy would not recover in the near term, since government policy was focused on helping producers rather than consumers in the current international economic environment.
But Li predicted that second quarter data would not deteriorate rapidly due to the effect of front-loading ahead of possible new US trade tariffs this summer, so adjustments in the government’s stimulus policies might need to wait until after the G20 summit in late June, when it will become clearer whether there is the prospect for a near-term solution to the US-China trade dispute or whether it will escalate further.