Industrial firms' profits maintain steady growth

Profits at China's major industrial companies maintained steady growth in July－another indication that the Chinese economy is consolidating its stable recovery despite rising downside pressures, officials and experts said on Friday.

Data from the National Bureau of Statistics showed profits at China's large industrial firms jumped 16.4 percent year-on-year in July, compared to a 20 percent gain in June.

Experts hastened to add well-targeted policy support will be needed to ease the pressure on rising costs for small midstream and downstream firms.

They said they expected policymakers would fine-tune the macroeconomic policy to support growth.

Fiscal and monetary policies should perform much stronger roles to boost the real economy and foster sound economic fundamentals in the second half of this year, they said.

For the January-July period, major industrial firms' profits surged 57.3 percent to 4.92 trillion yuan ($759 billion), and the average January-July growth rate in 2020 and 2021 stood at 20.2 percent, NBS data showed.

"Overall, profits of industrial firms with revenues topping 20 million yuan maintained steady growth in July, but it should be noted that the imbalance and uncertainty in the recovery of corporate earning still exist," said Zhu Hong, senior statistician of the NBS.

Zhu said the growth of industrial profits is likely to be affected by the sporadic COVID-19 cases and recent flooding, as well as rising commodity prices, which pressured profitability of small and micro business in the midstream and downstream sectors.

Wu Chaoming, chief economist at Chasing Securities, attributed the steady recovery of China's industrial profits to rising prices of industrial products as well as the rapid growth in profits of certain sectors like mining, raw material manufacturing, high-tech manufacturing and consumer goods manufacturing.

NBS data showed more than 60 percent of industries maintained profit growth in July. Particularly, profits of mining companies increased by 2.03 times. And profits of companies engaged in raw material manufacturing, high-tech manufacturing and consumer goods manufacturing grew by 50.9 percent, 37.9 percent and 18.6 percent year-on-year, respectively.

Wu estimated that the growth of industrial profits may slow in the second half as the high prices of raw materials and shipping will continue to pressure profitability of midstream and downstream enterprises amid rising downside pressure on industrial production and real estate.

"But, on the other hand, the producer price index is very likely to remain at a high level to support the industrial profit growth," Wu said.

Tao Jin, deputy director of the macroeconomic research center of the Suning Institute of Finance, explained the slower profit growth in July compared to June is mainly due to a declining low-base effect.

"Despite the supply constraints, the growth in the producer price index still picked up to the highest level of the year in July, driving rapid profit growth in sectors like mining and raw material manufacturing."

Looking ahead, Tao warned there are concerns about weakening momentum amid rising downside pressures on industrial production, external demand and real estate investment.

The slower recovery of consumption, manufacturing and infrastructure investment may also affect economic growth, he said.

"Against this background, policymakers should fine-tune the macroeconomic policy to support economic growth. The fiscal and monetary policies should perform much stronger roles to boost the infrastructure construction and support the real economy."

Zhou Maohua, an analyst at China Everbright Bank, said he expected the domestic economy to operate within a reasonable range in the second half on the back of the government's effective measures to prevent and control the COVID-19 epidemic as well as the gradual recovery of domestic and overseas demand.

"The government should make a big push to spur infrastructure investment and increase the financial support for small and micro enterprises and those in key and emerging sectors," Zhou said.

"More efforts should be made to ease the rising commodity prices and work with other countries to fight the COVID-19 pandemic to maintain the stability of global industrial and supply chains."