China industrial firms’ profits rise for first time in 6 months

Profits at China’s industrial firms rose for the first time in sixth months, suggesting the country’s economic recovery is gaining traction and brightening the outlook for manufacturing investment and jobs.

China’s national bureau of statistics said profits at China’s industrial firms in May rose 6% year-on-year to 582.3 billion yuan ($82.28 billion), according to a statement on Sunday.

The rebound followed a 4.3% fall in April, and is its sharpest monthly gain since March 2019.

Economic activity in China is clearly improving after the lifting of tough virus containment measures that led to weeks of near paralysis. But the recovery has been uneven and demand at home and abroad remains sluggish amid concerns of a second wave of infections and a global recession.

Despite May’s earnings growth, “market demand remains relatively weak amid the epidemic, and sustainability of the profit recovery deserves further observation,” Zhu Hong, senior statistician at the statistics bureau said in the statement.

Earnings for Chinese factories were hit by the sharpest factory-gate price drop in more than four years recorded in May, while exports slipped again, erasing a transient gain in April.

Futures prices for steel, which have surged this year on a government push for more infrastructure projects, fell last week as rising steel production and lean demand from downstream users stoked worries about oversupply.

For the first five months of 2020, industrial firms’ profits fell 19.3% from the same period last year to 1.84 trillion yuan.

May’s profit growth was aided by significant profit recoveries in key industries including oil refinery, power, chemicals and steel.

For example, the oil refinery sector recorded a profit of 11.6 billion yuan in May, up 8.9% year-on-year, swinging from a loss of 21.8 billion yuan the previous month. Power sector profits grew 10.9% in May, compared with a decline of 15.7% in April.

Zhu also attributed May’s profit growth to easing cost pressures, improving profit margins, positive impact from policy stimulus and much higher investment returns.

Earnings at China’s state-controlled industrial firms were down 39.3% on an annual basis for January-May, versus a 46.0% fall in the first four months, the statistics bureau data showed. Private sector profits fell 11% in the first five months, narrowing from January-April’s 17.2% slump.

Liabilities at industrial firms rose 6.6% on year at end-May, compared with a 6.2% increase as of end-April.

China’s securities regulator plans to grant investment banking licenses to commercial lenders as part of efforts to breed industry behemoths in the face of fiercer foreign competition, business magazine Caixin reported.

A pilot scheme could involve at least two of China’s largest banks getting the green light from the China Securities Regulatory Commission (CSRC) to conduct investment banking business on the mainland, according to Caixin.

The Industrial and Commercial Bank of China , the country’s top lender, submitted a plan to CSRC in late 2018 seeking to set up a securities unit with registered capital of 100 billion yuan, Caixin reported.

In contrast, Chinese brokerage giant Citic Securities has registered capital of 13 billion yuan.

ICBC declined to comment. CSRC didn’t return an emailed request for comment.

Regulators’ desire to break the wall between commercial and investment banking was fueled by mounting competition from foreign players, according to Caixin. China scrapped foreign ownership caps in the brokerage business earlier this year as part efforts to fully open its $40 trillion financial industry. Global investment banks including Morgan Stanley, Goldman Sachs and Credit Suisse have won regulatory approval for majority stakes in their Chinese ventures.

Currently, investment banking is off-limits to most Chinese banks, though Bank of China and China Development Bank control brokerage businesses onshore under special arrangements by the government.

In addition, many Chinese banks, including ICBC, China Construction Bank (CCB) and Bank of Communications (BoCom), operate investment banking through their Hong Kong subsidiaries.

China’s three biggest state-owned airlines on Sunday took delivery of their first ARJ21 aircraft, a short haul 90-seater aircraft made by state-run Commercial Aircraft Corporation of China (COMAC).

COMAC said in a statement on Sunday that Air China, China Eastern Airlines Corporation and China Southern Airlines Co had received the aircraft, which has a 90-seat capacity, and would each take delivery of three ARJ21 aircraft this year.

Reuters