China’s industrial profits fall in April as coronavirus restrictions squeeze companies

© Reuters. FILE PHOTO: A person looks at cranes in front of the skyline of Beijing’s central business district (CBD) in Beijing, China, October 18, 2021. REUTERS/Thomas Peter

BEIJING (Reuters) – Profits at Chinese industrial companies fell at the fastest pace in two years in April as high raw material prices and supply chain disruptions caused by COVID-19 restrictions squeezed profits and disrupted factory activity.

Profits fell 8.5 percent from a year earlier, after rising 12.2 percent in March, according to a Reuters calculation based on data released by the National Bureau of Statistics (NBS) on Friday. It was the biggest drop since March 2020.

“In April, the frequent outbreaks of COVID-19 in some regions had a huge impact on the production and operation of industrial enterprises, causing their profits to decline,” Zhu Hong, a senior statistician at the National Bureau of Statistics, said in a statement.

In a statement, Zhu confirmed an 8.5% drop in April.

While high commodity prices boosted profits in some upstream sectors — mining surged 142% — profits for manufacturers fell 22.4%.

Profits in the eastern and northeastern regions, hit by the Covid-19 outbreak, fell 16.7% and 8.1%, respectively, in the first four months, Zhu said. Auto manufacturing dragged down manufacturing profits by 6.7 percentage points in April.

Industry has been hit hard by draconian and widespread anti-virus measures that have closed factories and clogged highways and ports.

Industrial output in Shanghai’s commercial hub, the manufacturing hub of the Yangtze River Delta, plunged 61.5% in April and was in full lockdown, well above the 2.9% drop across the country.

“At present, the situation of epidemic prevention and control in the Yangtze River Delta has improved, and the resumption of work and production is progressing steadily.” Zhu said that the impact of the epidemic on industrial enterprises is expected to gradually ease.

Profits at industrial companies rose 3.5 percent year-on-year to 2.66 trillion yuan ($395.01 billion) in the January-April period, down from an 8.5 percent rise in the previous three months, the Bureau of Statistics said.

Economic activity in the world’s second-largest economy was very weak last month as exports lost momentum and the real estate sector wobbled.

On Wednesday, Premier Li Keqiang acknowledged sluggish growth and said economic difficulties in some areas were worse than in 2020 when the economy was first hit by the COVID-19 outbreak.

“We must work hard to ensure reasonable economic growth in the second quarter, reduce unemployment as soon as possible, and keep the economy operating within a reasonable range,” Li Keqiang said at the meeting.

China recently slashed benchmark lending rates for business and household loans for the second straight month and cut a key mortgage reference rate for the first time in nearly two years.

While policymakers pledged more support for the faltering economy, many analysts cut their full-year growth forecasts, noting the government has shown no signs of loosening its “coronavirus zero” policy.

At the end of April, liabilities of industrial companies rose 10.4% from a year earlier, down slightly from 10.5% at the end of March.

Industry profit data covers large enterprises with annual revenue of more than 20 million yuan from their main business.

($1 = $6.7340)

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