China April industrial profits reverse falling trend

hinese workers dig out part of a small tunnel underground while working on a new subway line in Beijing, China.
Kevin Frayer | Getty Images
hinese workers dig out part of a small tunnel underground while working on a new subway line in Beijing, China.

Chinese industrial sector profits posted their first annual rise since last September, National Bureau of Statistics data showed on Wednesday, in a sign margin pressure on firms may be easing and government stimulus may be filtering into the real economy.

Industrial sector profits in April rose 2.6 percent from a year earlier, but were down 1.3 percent for the year to date, reflecting the extreme weakness of growth in the first quarter.

The statistics bureau said after the data that recent interest rate and fee cuts were boosting industrial profits, but that companies still faced weak demand and falling prices.

Is China's growth falling below 7%?
Is China's growth falling below 7%?   

Analysts highlighted the recent bounce in oil prices, with the international benchmark Brent crude up close to $15 February to April, as one factor helping profits bounce back.

"The super simplistic model of Chinese corporate profits is that margin contraction or expansion aligns most closely with commodity prices, while volumes are driven more by construction activity," said Thomas Gatley, China Corporate Analyst at the economics consultancy Gavekal Dragonomics in Bejing.

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"Currently we're seeing some margin pick-up coming from the bounce back in oil prices, but the underlying worry on volumes is that growth continues to grind lower and lower."

With China's credit and money supply data in April missing expectations on the one hand, and some signs of a bottom in the real estate sector on the other, analysts have been watching closely for any signs of a turnaround in the industrial sector.