Nation's industrial profits bounce back in June

An employee works on Wednesday at a production line of a textile enterprise in Qingzhou, Shandong province. [Photo by Wang Jilin /for China Daily]

Recovery: Inflation seen to remain below target

Profits of China's industrial firms rebounded back to growth in June, pointing to a steady recovery of economic activity amid a gradual resumption of work and production across the nation.

China's industrial profits rose 0.8 percent year-on-year in June, after shrinking 6.5 percent in May, reversing a two-month fall caused by disruption from COVID-19 outbreaks, the National Bureau of Statistics said on Wednesday.

Experts noted that the positive June data showcased the resilience of the Chinese economy, saying that it will likely rebound in the second half of the year with strong policy support and better containment of the COVID-19 pandemic.

Despite the improvement, they also warned of headwinds from a gloomy global economic outlook as well as uncertainties both at home and abroad, and they expected to see more policy stimulus and infrastructure funding in the following weeks.

The International Monetary Fund recently cut its global growth projections, forecasting that the world economy will grow by 3.2 percent this year and 2.9 percent in 2023.

The IMF's global inflation forecast for this year has been revised up due to food and energy price rises as well as lingering supply-and-demand imbalances, and it is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging markets and developing economies.

According to the bureau, industrial enterprises' profits grew 1 percent year-on-year in the first half of 2022.

Zhu Hong, a senior statistician at the bureau, said profit growth in June was assisted by a recovery in industrial and supply chains.

With the limited impact of factory-gate inflation and energy prices on consumer prices and subdued core inflation due to weak domestic demand, Tommy Wu, lead economist at the Oxford Economics think tank, said his team expects China's consumer inflation to remain below the annual target of around 3 percent in 2022.

He noted that China's June data was more positive as activity continued to recover from the impact of COVID-19, and the economy is poised to recover in the second half of the year.

"Policy stimulus will play a crucial role in boosting growth. Investment in infrastructure and other strategic sectors will be the main growth drivers."

Yin Yue, an analyst at Shanghai-listed Hongta Securities, attributed the growth in industrial profits to the improvement in industrial production and sales amid the resumption of production and work across the nation.

In June, China's value-added industrial output grew 3.9 percent year-on-year, while factory-gate inflation rose at its slowest rate in June since March 2021 as a result of the government's solid steps to stabilize soaring prices, according to data from the bureau.

Yin said profits at upstream mining companies grew at a fast speed in June, while those of their midstream and downstream counterparts saw improvements amid cooling factory-gate inflation and a pickup in production and demand in some sectors.

Zheng Houcheng, director of the Yingda Securities Research Institute, said commodity prices may be pressured amid growing fears of a global recession, the US Federal Reserve's continuous interest rate hikes and the European Central Bank's move to raise its benchmark rate by 50 basis points.

Against that backdrop, Zheng said that growth in the mining sector's profits is likely to slow in the following months, while the manufacturing, power, heating, gas and water production and supply sectors will see improvement in their profits.