industrial profits

 Chinese industrial profits grew steadily in the first quarter, despite challenges posed by COVID-19 flare-ups in multiple Chinese cities.

A combination of tax and fee cuts and relief policies has ensured the steady profit growth of industrial enterprises, analysts said. But they also warned that external inflationary pressure and the domestic spread of the virus still pose challenges to industries, and they called for more pro-growth policies to stabilize the economy.

In the first quarter, relatively large industrial profits of enterprises above a designated size rose 8.5 percent year-on-year to 1.95 trillion yuan ($297 billion), according to data released by the National Bureau of Statistics (NBS) on Wednesday.

Industrial firms' profits rose 12.2 percent from a year earlier in March according to the calculation of the Global Times based on NBS data. The figure accelerated from 5 percent in the first two months. Profits in the mining industry were up 148 percent in the first three months, with the growth rate expanding by 15.8 percentage points compared with the January-February period, benefiting from higher commodity prices.

Profits of the high-technology manufacturing sector, highlighted by the electronic telecommunication and pharmaceutical industries, shot up 3.8 percent year-on-year in the first quarter.

Growth was shored up by a combination of tax cuts and bailouts for enterprises, said Zhu Hong, a senior NBS statistician, on Wednesday.

"The rising prices of commodities and raw materials contributed significantly to the profits of upstream industries in March," Zhou Maohua, a macroeconomic analyst at Everbright Bank, told the Global Times on Wednesday.

Bailout policies and efforts to ease supply chain bottlenecks also reduced the operating pressure of businesses, Zhou said.

According to the NBS, the overall operating profit margin in the first quarter was 6.25 percent, up 0.28 percentage points from January.

"The 8.5 percent growth of industrial profits beat market expectations," Chen Jia, a research fellow at the International Monetary Institute of Renmin University of China, told the Global Times on Wednesday.

But the economic toll of COVID-19 on the industry and supply chains is likely to be reflected in the second quarter, Chen said.

Looking into the second and third quarters, Chinese companies' profits still face downward pressure amid headwinds caused by COVID-19, analysts said.

The rising number of COVID-19 infections in several Chinese cities in April may curb flows of commodities and labor, which will continue to impact on production, Wu Chaoming, a vice president of Chasing International Economic Institute, told the Global Times on Wednesday.

"The weak recovery of consumption under the impact of the epidemic, coupled with pessimism about the real estate market, will also constrain demand for industrial products and weigh on profits," Wu said.

Middle and downstream firms, especially small ones, could face the dual pressure of slowing demand and rising costs, Wu added.

As more support policies are released, whether enterprises can seize the opportunities and emerge from the pandemic stronger will directly affect their profits, Chen said.

Other factors, such as the risk of capital outflows caused by US' monetary tightening, a shift of export orders to other markets and the urgent need to help small firms and sectors hit by COVID-19, call for more prudent and pro-growth moves by policy-makers, Chen added.