China: Industrial profits turn positive on fiscal push – ING

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Iris Pang, economist at ING, notes that China’s industrial profits grew 1.1% year-on-year in May after declining 3.7% YoY in April.

Key Quotes

“This sounds good but is actually due to the impact of higher government spending on infrastructure projects.”

“Railway-related equipment producers posted excellent profit growth of 42.9%YoY in Jan-May while the black metal mining industry saw profits surge 229%YoY.”

“Major industries in the private sector continued to experience falling profits in May, year-to-date.”

“The data suggests that the government’s investment in infrastructure, particularly its decision to add more metro lines across cities in the same province, is supporting economic activity. But these activities have not benefited manufacturing in the private sector.”

“We have revised our projection of fiscal stimulus in 2019 from CNY 2 trillion to CNY 4 trillion, as the trade and technology war continues to escalate. That’s why we think GDP growth of more than 6% in 2019 is still very likely. Our GDP forecast for 2019 remains at 6.3%.”

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