China industrial profits rise despite trade, deflationary worries

China’s industrial profits rose for a second straight month in April, official data showed Tuesday, with their growth improving despite prohibitive U.S. tariffs and persistent deflationary pressures.

Cumulative profits at major industrial firms climbed 3% last month compared to a year earlier, accelerating from a 2.6% growth in March.

In the first four months this year, industrial profits rose 1.4%, year on year, according to the National Bureau of Statistics, bolstered by stronger earnings in the equipment and high-tech manufacturing sectors.

U.S. President Donald Trump slapped eye-watering tariffs of 145% on imports from China last month, drawing Beijing to retaliate, effectively amounting to a mutual trade embargo between the world’s two largest economies. That, however, did not significantly impact Chinese exports that found other markets.

Earlier this month, Washington and Beijing agreed to lower most of those levies, following a trade truce struck during a meeting between the Trump administration and Chinese leadership in Geneva, Switzerland.

U.S. tariffs on goods imported from China are now down to 51.1% while China’s levies on U.S. imports stand at 32.6%, according to think tank Peterson Institute for International Economics.

The profit growth in April was stronger than expected, said Lynn Song, chief economist for Greater China at ING, noting the “encouraging” sign that the manufacturing firms saw improved bottom-lines despite the “more challenging external environment.”

Profits in the high-tech manufacturing industry from January to April climbed 9% from a year earlier, with notable improvement in the biopharmaceutical products and aircraft manufacturing.

Supported by a scheme that subsidizes consumers who trade in old electronics and appliances, the household appliances manufacturers also saw profits improve over 15% from a year ago, data showed.

Profits in the mining sector fell 26.8% year on year in the January to April period, while the manufacturing and utilities sectors — electricity, heating, gas and water supply — saw them rise 8.6% and 4.4%, respectively.

State-owned industrial firms saw their profit decline 4.4% in the January to April period compared to the same period a year ago. Private enterprises and those with foreign investments saw profits improve 4.3% and 2.5%, respectively.

Weining Yu, a statistician at the NBS, attributed the improved profitability to the industrial sectors’ “resilience and ability to withstand shocks,” while cautioning that “constraints such as insufficient demand and declining prices” still persist and “uncertainty in the external environment” is still high.

Certain industries also faced steeper headwinds, Song pointed out, such as the automobile sector that’s caught in a severe “price competition” and the apparel sector which is likely to have seen demand shift to other markets after the rollout of new tariffs.

Auto industry profits slumped 5.1% year on year in the first four months this year, while the textile, clothing and apparel industry saw a 12.7% decline.

The profit gain in major industrial enterprises came on the back of a 6.1% expansion in industrial output in the country last month. Retail sales growth, however, slowed to 5.1% from a year earlier, underscoring the persisting supply-demand imbalance in the economy.

China’s industrial profits returned to growth in the first quarter this year, rising 0.8% from a year earlier, reversing the trend of declines since the third quarter of last year.