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China’s Industrial Profits Plunge for First Time Since 2020

Economic Indicators May 27, 2022 13:32
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© Reuters.

(Bloomberg) -- Profits at Chinese industrial firms shrank last month for the first time in two years as Covid outbreaks and lockdowns disrupted factory production, transport logistics and sales.

Industrial profits fell 8.5% in April from a year earlier, data from the National Bureau of Statistics showed Friday. It’s the worst performance since April 2020.

Factories have struggled during the latest outbreak largely because of the extended lockdown in Shanghai, an important port city that is also at the heart of the Yangtze River Delta region, a major economic hub. Earlier this month, the government reported that output unexpectedly fell in April. The 2.9% decline in output was the most for a single month since 1990, a sign of how paralyzing the Covid curbs were for activity.

“Profits were under obvious short-term pressure in April,” NBS senior statistician Zhu Hong said in a statement accompanying the Friday data. The agency attributed the fall to frequent and sporadic Covid outbreaks, which impacted production and operation.

The profit drop was sharp compared to March data, when profits increased about 14% in March, according to Bloomberg calculations based on National Bureau of Statistics data. For the first four months of the year, profits grew 3.5%, slower than an 8.5% rise in the first quarter. 

Foreign industrial firms operating in China saw a bigger drop of 16.2% in their profits during the January-April period. Profits at private firms fell 0.6%, while profits at state-owned enterprises were up 13.9% during that time frame.

Manufacturers in and around Shanghai have reported difficulties in keeping factories operational even while using a “closed-loop system” in which workers live on site and test frequently. Logistics were also nearly paralyzed in some areas, creating bottlenecks that strained transportation and supply chains.

What Bloomberg Economics Says ...

“The longer the pressures lasts, the greater the impact on employment and investment will be. The government has rolled out a number of support measures. The key will be how long the lockdowns are kept in place. Without looser restrictions, the economy is unlikely to respond much to additional stimulus.”

-- David Qu, economist

Read the full report here

As Shanghai takes steps toward gradual reopening, daily operations at the city’s port have almost fully recovered from the effects of the city’s Covid-19 lockdown. However, the backlog from disruptions to the port and nearby factories will likely continue to cause shipping congestion well into the year, continuing to hurt activity.

(Updates with economist quotes and chart.)

©2022 Bloomberg L.P.

China’s Industrial Profits Plunge for First Time Since 2020
 

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