China industrial profits up, but mired in single-digit growth

 Profit growth at China's industrial firms accelerated in January-February in line with other signs of momentum in the economy, although the outlook clouded by COVID-19 outbreaks and the war in Ukraine is stoking calls for supportive measures.

Profits rose 5.0% in from a year earlier, up from a 4.2% gain in December, the National Bureau of Statistics (NBS) said on Sunday.

The growth in January-February was driven by surging profits in the energy and raw materials sectors, thanks to higher prices of commodities such as crude oil and coal. January and February data are typically combined to smooth out distortions from the Lunar New Year holiday, which can fall in either month.

Downstream, monthly profit growth among other industrial firms has been weighed down by high raw material costs, languishing in the single-digits since November.

The slightly faster industrial profit growth was in step with improvement in NBS data on industrial output, retail sales and fixed-asset investment in January-February, suggesting the impact of recent policy measures were starting to be felt.

Still, challenges have emerged this year including China's most serious COVID outbreak since early in the pandemic in 2020, driven by the Omicron variant, threatening to disrupt local economies and further chill consumer spending.

"The gap between upstream and downstream profit margins widened as downstream profit margins fell further," Goldman Sachs analysts wrote in a note.

"We expect the COVID outbreak in multiple provinces to weigh on industrial profits in the near term."

Given the coronavirus flare-ups, policies to further ease monetary and fiscal measures can be expected, they said.

The financial hub of Shanghai has been battling with its worst COVID spell in the past month since the initial outbreak in China two years ago.





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