Profits at China’s factories fall to 10-year-low on virus hit

The coronavirus outbreak forced Chinese industrial firms to close for months, affecting profits, prices and output.

China factory coronavirus
Many Chinese factories remained closed for weeks following the Lunar New Year holiday in late January due to the coronavirus outbreak [File: China Daily via Reuters]

Profits at China’s industrial firms slumped in the first two months of the year to their lowest in at least a decade, with the mining, manufacturing and power sectors all seeing sharp falls as the coronavirus outbreak battered China’s economy.

Profits earned by Chinese industrial firms in January and February dropped 38.3 percent from a year earlier to 410.7 billion yuan ($58.15bn), worsening from a 6.3-percent fall seen in December last year, the National Bureau of Statistics (NBS) data showed.

It marked the steepest decline in data going back to 2010.

The reading combines the results for January and February to exclude distortions caused by the week-long Lunar New Year.

Businesses, however, were closed for much longer than the usual one week as the coronavirus outbreak escalated just as the holiday began. Widespread restrictions on transportation and personal travel, as well as mass quarantine, delayed their reopening for weeks.

The decline in profits points to lingering trouble for the manufacturing sector, which is wrestling with the fallout from the health crisis that has severely hurt output and is expected to halve economic growth in the current quarter compared with the previous three months.

Industrial production and sales declined significantly amid the pandemic control efforts, while the costs of labour and depreciation continued to put pressure on companies, a statistics bureau official said in a statement published alongside the data.

An overwhelming majority of industries saw their profits decline, it said, from automobiles to chemicals.

The weakness in profits was in line with broader pressures on Chinese factories.

Manufacturing output plummeted at the sharpest pace in three decades in the first two months as the outbreak interrupted normal production, while factory-gate prices fell more than expected in February and erased the slight recovery in January.

China’s central bank cut the cash that banks must hold as reserves earlier this month for the second time this year, injecting 550 billion yuan ($77.9bn) to help the economy cushion the impact from the health crisis, following an 800-billion-yuan ($113bn) reserve requirement rate cut in January.

The government has also stepped up fiscal support, including more funding to battle the virus fallout, tax waivers, cuts in social insurance fees and subsidies for firms.

For the first two months, profits at state-owned industrial firms dropped 32.9 percent on year, while private-sector profits fell 36.6 percent.

Liabilities at industrial firms grew 5.3 percent on year at end-February, versus a 5.4 percent increase as of end-2019.