Industrial profits show economic resilience

Profits at China's major industrial companies returned to growth in April amid strong policy stimulus and a continued recovery in market demand, adding signs that the world's second-largest economy is on a firmer footing.

While the latest indicators point to the stabilization of the economy, China's economic activity was likely mixed with an uneven recovery across sectors, underscoring the need for further stimulus measures in fiscal, monetary and regulatory policies, analysts said.

They said it is advisable for authorities to speed up the issuance of local government special bonds, accelerate the implementation of key projects funded by fiscal spending, further cut the banks' reserve requirement ratio and interest rates, and introduce more property easing policies.

Data from the National Bureau of Statistics showed on Monday that industrial enterprises with annual revenue of at least 20 million yuan ($2.8 million) saw their total profits surge 4 percent year-on-year in April, after a 3.5 percent decline in March.

For the January-April period, China's industrial profits increased 4.3 percent year-on-year, flat with the figure in the first quarter.

Zhou Maohua, a researcher at China Everbright Bank, said the industrial profits improved in April with the gradual recovery in market demand and macroeconomic policy measures taking effect gradually, and given the low comparison base in the previous year.

"A breakdown of the official data showed that the high-tech and equipment manufacturing sectors reported higher gains, while many other sectors including food, textiles, furniture and chemical materials saw improvements in their profits," Zhou said. "That points to a gradual market demand recovery in midstream to upstream sectors."

NBS data also showed that profits at equipment manufacturing enterprises surged 16.3 percent in the first four months, 12 percentage points higher than that of the overall industrial profits.

Despite facing pressures amid an uneven recovery, still-weak demand and operational difficulties faced by enterprises, Zhou said the industrial profits will likely continue to improve in the following months. "Recent economic indicators point to a continued recovery trend in market demand," he said.

"The country will likely further optimize the policies on tax and fee reductions and expedite the promotion of large-scale equipment renewal and trade-in deals for consumer goods. The upgrading of the manufacturing sector and the strong performance of high-tech and equipment manufacturing sectors will also support the growth of industrial profits," Zhou added.

Xiong Yuan, chief economist at Guosheng Securities, said that China "is headed in the right direction in terms of tackling housing woes, with a series of recently released property easing measures, which will significantly stabilize market expectations".

Xiong said he expects to see further policy measures to boost domestic demand, including speeding up the issuance of local government special bonds, further RRR and interest rate reductions, and more property easing policies in first-tier cities.