Profits of Chinese industrial enterprises increased by 0.7% y/y in May

In May 2024, the profit of China’s industrial enterprises increased by 0.7% compared to the same period last year, Bloomberg reports with reference to the country’s National Bureau of Statistics (NBS).

This is significantly lower than the 4% year-on-year growth in April. According to the results of 5 months, the profits of the Chinese industry increased by 3.4% y/y.

The figure rose slightly in May as higher commodity prices eased pressure on the mining industry. The decline in profits in the sector slowed to 16.2% y/y in January-May 2024.

External demand for Chinese goods was strong in May of this year, and exports grew more than expected in the period.

It remains to be seen whether the recovery in the industrial sector will continue, as domestic demand remains weak. In May, the downturn in the housing market deepened, affecting demand for steel, iron ore, and construction materials. Retail sales recovered somewhat, but their growth rate was still well below pre-pandemic levels.

The government encouraged businesses and households to upgrade equipment and household appliances to boost consumption. This campaign has benefited the equipment manufacturing sector, which saw its profits grow by 11.5% y/y in January-May.

According to the NBS, in January-May 2024, the profits of private companies increased by 7.6% y/y, and those of foreign companies by 12.6% y/y. State-controlled enterprises recorded a 2.4% y/y drop in profits over 5 months.

Crude oil refining, coal and steel industry were among the few sectors that showed a drop in profitability or direct losses over the past 5 months. All of them face the problem of excess capacity compared to demand. Other unfavorable factors include prolonged deflation and Beijing’s desire to reduce carbon emissions.

Steel mills are trying to offset the impact of the ongoing real estate crisis. However, despite the increase in production in May, demand is still low, steel exports are high, and margins remain under pressure, UBS Group said in a note.

Steel prices should rise, Bloomberg notes, if the government enforces emissions-related limits on annual steel production.

As GMK Center reported earlier, industrial production in China increased by 5.6% in May this year compared to May last year. Compared to April, this figure increased by 0.3%, and by 6.2% y/y in January-May.