With COVID-19 Restrictions Eased, China's Industrial Profits Recovered In June

Profits at China's industrial firms increased in June, boosted by the resumption of activity in major manufacturing hubs, but concerns about a COVID-19 resurgence cast a shadow over future factory output.

According to figures provided by the National Bureau of Statistics (NBS) on Wednesday (Jul 27), profits increased 0.8% from a year earlier in June, following a 6.5% decrease in May.

The June report reveals industrial firms are gradually recovering from painful supply chain disruptions in the second quarter, helped by lessening pandemic constraints and government stimulus.

The efficiency of industrial businesses significantly increased as the pandemic was successfully contained and the industrial chain continued to recover, according to a statement from NBS senior statistician Zhu Hong.

China's economy saw a severe slowdown in the April to June quarter, underscoring the enormous toll that pervasive lockdowns that harmed domestic consumption and company confidence had on activity.

In comparison to the same quarter a year prior, industrial enterprises' total profits increased 1% to 4.27 trillion yuan (US$631.1 billion). According to the data, that was in line with the 1.0% growth rate in the first five months. Industrial companies' liabilities increased by 10.5% at the end of June, matching the 10.5% growth seen at the end of May.

As the nation continues to defy the global trend of rising prices, China's industrial output increased by 3.9% in June from a year earlier, and factory-gate inflation fell to its lowest level in 15 months. A two-month COVID-19 city-wide lockdown has gradually ended, and factory activity has resumed in the Shanghai area. In June, Tesla's Shanghai facility produced more than it had since it launched in 2019.

However, concerns over a COVID-19 comeback and the resumption of stringent measures to eradicate infections nationwide pose difficulties for manufacturing output and economic recovery in the second-largest economy in the world.

According to a letter attributed to the local government on Monday, the Chinese tech hub of Shenzhen instructed 100 significant enterprises, including iPhone manufacturer Foxconn, to build up "closed-loop" systems as it confronts COVID-19.

In order to combat fresh outbreaks, the port city of Tianjin, which is home to enterprises connected to Boeing and Volkswagen, as well as the coastal cities of Beihai in Guangxi and Lanzhou in Gansu province, tightened COVID-19 restrictions earlier this month.

While this is going on, authorities are frantically trying to prevent other issues, like a debt crisis in the real estate industry, from spreading to the rest of the economy during a politically delicate year.