(From left:) Zhu Hong, Wan Chai, and Liu Guangping
(From left:) Zhu Hong, Wan Chai, and Liu Guangping

China's industrial growth remains stable with improved profit mix in 2019

By Xinhua News Agency Time of article published Feb 11, 2020

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BEIJING - China's industrial growth, especially that of the manufacturing sector, remained stable in 2019, with the mix of profit improving despite of a profit decline.

China's industrial firms with main business revenue exceeding 20 million yuan reaped operating revenue of 105.78 trillion yuan in 2019, rising by 3.8 percent from 2018, with profits down 3.3 percent on year to 6199.55 billion yuan, data released by the National Bureau of Statistics (NBS) on February 3 showed.

Although the profit declined, the industrial sales realised growth in general and the mix of profit improved, noted experts.

Experts predicted that industrial firms will face a certain pressure in 2020, but the accumulating favourable factors like tax cut, charge slash, financial support and industrial transformation and upgrading will empower the stable growth of the industry.

Industrial firms in China may see their profits stay low in the first half and grow faster in the latter half of this year, said experts.

Multiple industries see profit growth

Data showed that the mining sector racked up profits of 527.53 billion yuan in 2019, up 1.7 percent over the previous year; the manufacturing sector, 5190.39 billion yuan, down 5.2 percent; and the electricity, heat, gas and water production and supply sector,  481.63 billion yuan, up 15.4 percent.

Key industrial sectors such as steel, chemical engineering, automobile and petroleum processing reported steep profit declines, which was 37.6 percent, 25.6 percent, 15.9 percent and 42.5 percent, respectively.

The fall in profits is attributed mainly to weak demand, lower prices of industrial products and rising costs, according to NBS senior statistician Zhu Hong.

However, industries seeing profit growth still largely outshone those encountering profit decline. Data showed that 28 out of 41 major industries reported year-on-year profit growth in 2019, among which nine sectors even witnessed double-digit profit growth.

The profits of electricity and heat production and supply, electrical machinery and equipment, special equipment manufacturing, and the alcoholic beverage and refined tea industry jumped 19.0 percent, 10.8 percent, 12.9 percent and 10.2 percent year on year, respectively, driving the profit growth of industrial firms with main business revenue exceeding 20 million yuan 2.3 percentage points higher than that of 2018.

Sectors such as building materials, pharmaceutical manufacturing and food manufacturing saw their profit growth ranging from 5 percent to 10 percent in 2019.

Profit mix improves greatly

It's noteworthy that the profit mix of industrial firms improved greatly in 2019.

According to Zhu Hong, the high-tech manufacturing industry and the strategic emerging industries registered a respective profit growth of 4.8 percent and 3.0 percent, better than the average level of the whole industry.

Besides, the two sectors took up a bigger proportion of the total profits generated by industrial firms with main business revenue exceeding 20 million yuan, which was respectively 1.2 percentage points and 1.6 percentage points higher than that of 2018.

Influenced by base number and demand, the profit growth of industries clearly differentiated in 2019, with that of the high-tech manufacturing sector remaining stable in general, said Ming ming, an analyst with CITIC Securities.

Private and small companies expanded their profits in 2019 respectively by 2.2 percent and 5 percent year on year, presenting stable growth. "In recent years, China has issued a series of policies like tax and fee cuts, administration simplification and decentralization, innovation and financial support, creating better environment to promote development of private and small companies," said Zhu Hong.

The mix of industrial firms was optimized in 2019, with high value-added technology-intensive firms taking a bigger share, said Liu Zhe, deputy head with WANB New Economy Research Institute, a non-profit think tank in China, adding that tax and fee cut as well as optimized business environment has helped private firms get a gradual recovery in cash flow, profits and expectations.

Profits of industrial firms may pick up after setbacks in 2020

According to experts, the development of China's industrial firms in the first quarter (Q1) of 2020 will be affected by the novel coronavirus epidemic to some extent, but there is still strong impetus for the country to realise steady industrial economic growth thanks to its strong industrial resilience and the release of more positive factors.

The manufacturing Purchasing Managers' Index (PMI), a leading indicator, has shown positive signals. Official data showed that in January 2020, the manufacturing PMI stood at 50, above the threshold for three consecutive months, while the Caixin China General Manufacturing PMI, an indicator mainly reflecting the development of small and medium-sized enterprises, reported 51.3.

Liu Zhe believed that the delays in resumption of work and the decline in capacity utilisation caused by the novel coronavirus epidemic may pose pressure on industrial firms in fixed costs, labor costs and cash flow. He estimated that industrial necessities like electricity and heat will meet stably-growing output while non-necessities for epidemic prevention and control will face declining growth in Q1, 2020.

However, she noted, as the influence posed by the epidemic decreases gradually, industrial firms, which boast stronger recovery ability than service business, are likely to have their profits recover after setbacks.

To stabilise the development of industry, especially manufacturing industry, will be in the limelight of China economy in 2020, noted Lin Zhiyuan, deputy director of Center for Macroeconomics Research of Xiamen University, adding that huge market potential, sound innovation atmosphere, relatively-complete industrial chain and increasingly-improved business environment will provide strong support for China's industrial transformation and manufacturing upgrading.

Miao Yu, Minister of Industry and Information Technology, also noted that there are still many powerful factors for stable industrial economic growth, such as the continuously-deepened opening-up, the large-scale tax and fee cut, the transformation and upgrading of innovative development.

Besides, the digital, network and intelligent development of the manufacturing industry, the quick and deep integration of the Internet, big data, artificial intelligence with the real economy, as well as the rapid development of the emerging industries and the transformation of the traditional industries will continuously release great powers to drive the economic growth, the minister added.

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