China’s industrial firms’ profits have jumped at their fastest rate since July 2014, adding to evidence of a continued stabilization in manufacturing.
Industrial profits rose 11.1 percent in March compared with a year earlier, rising to 561.2 billion yuan ($86.4 billion) in March. This compares with a 4.8 percent rise in the first two months of the year, the National Bureau of Statistics said on April 27.
The acceleration is mainly due to growth in sales, milder producer price deflation, cost cuts and gains from investments, the NBS said in a statement.
The fresh signs of stabilization may allow the government to dial back aggressive fiscal and monetary stimulus, as property markets and factories rebound. Several investment banks have dropped their earlier expectations of an interest rate cut this year.
Some high-frequency indexes also pointed to continued improvement in April, including a higher MNI business sentiment index and an improved Minxin Purchasing Manager Index.
Tom Orlik, chief Asia economist at Bloomberg, cited English poet Geoffrey Chaucer’s poetry line, “April with its showers sweet”.
“China, this April, is going to be all Chaucer,” he wrote in a note. However, the NBS noted the rebound may not be sustainable. Profits in March were concentrated in a few industries, including information technology, chemicals, auto and petroleum refining. And strong investment and net nonoperating income gains, which account for 30.5 percent of profits, may not last.
Structural headwinds facing China’s industrial sector, such as weak aggregate demand, oversupply and inventory pressure, remain strong, said He Ping, an economist with the NBS.
Whether the uptick in industrial profit can be sustained remains to be seen, He said.