Yating Xu, Economist, IHS Global Insight
JAKARTA - IHS Global Insight provided latest report on Chinese industrial profit growth, which falls in April on slower expansion in electronics, power and automotive sectors. Following the key points of the report:
Key Points:
- China’s industrial profit growth slowed in April. The profits rose 4.2% compared to a year earlier, down 6.9 percentage points from the previous month. Also, the year-to-date reading was 6.5%, down from the 7.4% growth posted for the first three months of the year.
- According to the National Bureau of Statistics on 27 May, the deceleration in growth was mainly due to slowing revenue growth and a decline in non-business income. In particular, the investment income dropped from the 20% year-on-year (y/y) expansion in March to the 19.8% y/y contraction in April, dragging the headline profit growth by 2.7 percentage points.
- Slower profit growth in the electronics, power and auto sectors was the main contributors to the headline deceleration.Electronics manufacturing profit growth fell 5.9% while it expanded 59% in March; power manufacturing profit growth contracted 11% while it grew 10.2% in March; and auto manufacturing profit growth slowed 4.4%, down 9.8 percentage points from March. They together led to a drop of 7.2 percentage points in the headline data.
- Profit performance continued to differ across sectors.The upstream mining sector remained in deep contraction, while the midstream sector improved. Profits in the ferrous-metals processing and the non-ferrous metals processing sectors improved from contraction to y/y growth of 41.9% and 6.6%, respectively, in April, owing to a low-base effect and the rise in commodity prices over the past months. Moreover, high-tech manufacturing sector experienced much higher profit growth compared to the headline data.
- The profit growth in state-owned enterprises (SOE) contracted at a faster rate with the deterioration in power sector and the drag from mining.
IHS Global Insight Views:
Although the producer price index (PPI) and SOE profit from the Ministry of Finance showed improvement in April, the profit continued to decline with the slower industrial output growth.
However, the profit performance indeed improved in 2016 compared to 2015 thanks to the supply-side reform, fiscal stimulus and PPI recovery. The expansion is expected to maintain in the second quarter, although it may moderate given the industrial output decline and likely PPI peak.
Restart of the production in sectors that have been struggling from overcapacity, like the steel industry, may weigh on the profit in the second half with price volatility and weak domestic demand. Moreover, the profit growth will continue to be affected by stock market volatility. (*)