Policy support helps stabilize industrial profit

Profits at China's major industrial enterprises declined at a slower pace in June, thanks to supportive government measures to boost domestic demand and ease burdens on companies, although still-weak demand continued to squeeze margins.

Despite the improvement in the decline of industrial profits, experts said the foundation for recovery is not yet solid amid domestic structural issues and external uncertainties, reinforcing hopes for further policy support to revive the world's second-largest economy.

As the market eagerly waits for a key meeting of top policymakers, usually held in July, to launch proactive measures to consolidate recovery momentum and set the tone for the economic policy for the second half, experts said they expect China's top leadership to sharpen its focus on expanding domestic demand, spurring consumption and stabilizing property and stock markets by announcing a slew of incremental measures.

According to data released on Sunday by the National Bureau of Statistics, industrial companies that have annual main business revenue of at least 20 million yuan ($2.8 million) reported total profit of 715.58 billion yuan in June, down 4.3 percent year-on-year, following a 9.1 percent decline in May.

In the first half of the year, industrial enterprises' profits dropped 1.8 percent year-on-year to 3.44 trillion yuan, the data showed.

Yu Weining, a statistician at the NBS, attributed the improvement in June's profit decline to the steady increase in corporate revenues, which Yu said were a result of sustained policy efforts to stabilize growth.

As the government ramps up efforts to extend and expand the scope of programs for large-scale equipment upgrades and trade-in deals for consumer goods, the profitability in related sectors is seeing significant improvement.

In June, profits at medical instrument and device manufacturing enterprises surged 12.1 percent year-on-year, while profits at unmanned aerial vehicle manufacturing companies and home air conditioning manufacturing companies surged 160 percent and 21 percent, respectively.

Wen Bin, chief economist at China Minsheng Bank, said he expects to see continued policy support to expand domestic demand and address the fierce competition, further assisting the recovery of industrial profits in the coming months.

Liu Xueyan, director of the Macroeconomic Situation Research Office at the Chinese Academy of Macro-economic Research, expressed her optimism about the nation's economic prospects in the second half, saying that government policies are expected to continue supporting economic recovery.

She emphasized the need to capitalize on the current window of opportunity, when the economy and social expectations are relatively stable, saying that the government should reserve incremental policies to ensure sustained growth for the remainder of the year.

"It is advisable for the government to strengthen both fiscal and monetary policy support, including expanding the scope of trade-in deals for consumer goods by piloting the issuance of consumption subsidies for cultural tourism, elderly care, healthcare and education services," Liu said.

Louise Loo, head of Asia Economics at the British think tank Oxford Economics, said that authorities may signal a step-up in their support for the housing sector during the key meeting of top policymakers. "Recent policy signals suggest that efforts will be focused on urban renewal, building green infrastructure and smart cities," Loo said.