Going forward, there are changes to mind in industry

Since the outbreak of the COVID-19 pandemic, China's industrial sector has taken the lead in resuming work and production, making important contributions to stabilizing both the domestic and global economies.

Although operating conditions of the nation's industrial enterprises continue to improve, they still face two major challenges.

First, already a reality, is that growing costs of raw materials have led to intensified industrial enterprise differentiation among various industries, affecting the balance and sustainability of the recovery of the industrial sector.

Second, as vaccines in Europe, the United States and elsewhere enter more arms, the gap between supply and demand in the global market will be effectively narrowed. That means, Chinese industrial product exports and the active import-substitution drive will face downside pressure, going forward.

PPI, CPI will diverge in H2

The National Bureau of Statistics said on June 27 that industrial enterprise profits continued to rebound in May. Profits of industrial enterprises above a certain scale increased 36.4 percent year-on-year in May, with the two-year average growth rate reaching 20.2 percent.

Total profits of industrial enterprises in the month reached 830.3 billion yuan ($128.54 billion), with a month-on-month growth of 8 percent.

Among the total 41 industries, four industries' combined monthly profits increased by 60.4 billion yuan from April, which was almost equivalent of the entire amount of the month-on-month increase in industrial profits in May.

The month-on-month growth rate of the profits of these four industries are automotives (41 percent), pharmaceuticals (37 percent), coal mining and washing (43 percent), and black metal smelting and rolling processing (14.3 percent).

The remaining 37 industries' combined profits hardly remained relatively stable from April to May, and 18 industries had zero or below-zero monthly profit growth rates. Among them, industries with profits dropping by monthly double-digit rates were rubber and plastic products (-10.4 percent), paper and paper products (-11.5 percent), textiles and apparel (-13.9 percent), agricultural and sideline food processing (-14.1 percent), metal products, machinery and equipment repair (-15.5 percent) and special equipment manufacturing (-22.7 percent).

Profit growth momentum diverged significantly among industries. Profits among mining and raw material manufacturing industries saw continuous growth, while manufacturing costs of midstream and downstream industries have risen rapidly, causing weaker profitability.

It can be predicted that for most of the second half of the year, the difference between the growth rates of the producer price index and the consumer price index will be significant.

Since 1996, the highest year-on-year growth in the PPI for consumer goods was about 5 percent (currently 0.5 percent), and the related PPI for production overall was roughly the same as the current level.