May 27, 2018 / 1:49 AM / a month ago

China April industrial profit growth rebounds to six-month high

(This story corrects typographic error in 14th paragraph)

FILE PHOTO: A worker monitors a robotic arm working inside a factory in Huaian, Jiangsu province, China May 15, 2018. REUTERS/Stringer

BEIJING (Reuters) - Profits earned by Chinese industrial firms in April rose at their fastest pace in six months, data from the National Bureau of Statistics (NBS) showed on Sunday, as factories benefited from higher prices and strong demand.

Profits in April rose 21.9 percent year-on-year to 576 billion yuan ($90.14 billion), the quickest since October, bringing gains for the first four months of 2018 to 15 percent.

The data suggests China’s industrial sector is still seeing solid growth momentum despite curbs on pollution and rocky trade relations with the United States.

Last month’s rebound was helped by lower comparison figures for April 2017, higher factory prices and stronger demand, He Ping, head of NBS’ industrial division, said in a statement.

It was a significant improvement over March’s 3.1 percent growth that was the slowest in over a year and which government officials had blamed on the timing of the Lunar New Year holiday.

The higher April data should help ease concerns of slowing momentum in China’s economy as the country implements tougher pollution controls on “smokestack” industries and cash-strapped regional governments cut back on big investment projects, curbing demand for building materials.

Profit growth for Chinese industrial firms has softened from last year’s strong pace as factory gate price gains weaken. In the first four months of 2017, profits rose 24.4 percent.

China’s producer price inflation picked up to 3.4 percent in April from March but was much lower than 6.4 percent in the year-ago period.

Weaker profit growth suggests companies may be reluctant to invest and hire new staff, while making it harder for debt-laden firms to service their debt, especially state-owned enterprises that account for the bulk of the country’s high leverage.

A Reuters analysis showed that debt growth for Chinese companies has slowed to the lowest rate in more than a decade, but companies have also seen profit margins squeezed to their lowest level in two years.

April economic data had shown signs of slowing momentum as investment growth touched a near 20-year low and retail sales growth weakened.

Despite stronger-than-expected first-quarter economic growth, economists polled by Reuters still expect a gradual slowdown to around 6.5 percent this year from 6.9 percent in 2017, as rising borrowing costs weigh on consumption and investment.

Beijing continues to call for tighter controls on risky investments and speculation in the property sector, but does not want to cut off funding to firms in the “real economy” such as manufacturing firms that are a key source of jobs.

There have also been signs that policymakers have moved to a slightly looser stance as they look to ensure growth doesn’t slow too much, while also keeping financial risks under control.

STEEL SECTOR LEADS REBOUND

April’s rebound was led by the steel, chemicals and automobile industries, said He, as profits for iron and steel processing firms rose 260 percent in April.

No industrial sectors recorded year-on-year losses over January to April, the data showed.

But earnings in the computer and telecommunications sector fell 5.3 percent over the four months, though that was a slight improvement from an 11 percent decline in the first quarter.

Liabilities of industrial firms rose 6.1 percent year-on-year as of end-April, according to the statistics bureau.

Profits at China’s state-owned firms rose 26.2 percent to 627 billion yuan for Jan-April, compared with a 23.1 percent rise in the first quarter.

The data includes companies with annual revenues of more than 20 million yuan ($3.13 million) from their main operations.

Reporting by Elias Glenn; Editing by Kim Coghill and Himani Sarkar

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