(Yicai) May 27 -- Profits at China’s industrial companies advanced in April, a big turnaround from March’s decline, as macroeconomic policies take effect. But market observers should not be overly optimistic about the extent of the recovery as headwinds still exist, analysts said.

Last month, profits at industrial firms with an annual turnover of at least CNY20 million (USD2.8 million) climbed 4 percent from the year before, while in March profits sank 3.5 percent, according to data released by the National Bureau of Statistics today. And revenue surged 3.3 percent, when in March they dipped 1.2 percent.

In the first four months, industrial profits jumped 4.3 percent year on year, the same growth rate as in the first three months, indicating steady growth, the bureau said.

The growth in revenue at industrial enterprises is an important factor driving the recovery of industrial profits, said Yu Weining, a statistician at the Industrial Department of the National Bureau of Statistics. As demand continues to recover, production is picking up and the decline in ex-factory prices has narrowed, boosting corporate revenue.

The low baseline, the rebound in recovery and the weakening drag on prices helped boost industrial profits back to growth in April, from negative growth in March, Wu Chaoming, deputy director of the Financial Information Research Institute, told Yicai.

But there are real cost pressures, Wu said. The increase in the prices of crude oil and other bulk commodities and the weakening of end demand due to the downturn in the real estate market, pushed up the unit cost of companies by CNY0.14 (USD0.02) in the first four months from a year ago.

The slowing PPI decline and the low baseline last year are expected to support continued growth in inventory, Wu said. But the inventory-to-sales ratio remains high, there is still uncertainty about a recovery in the real estate market and this may lead to an increase in corporate inventories. So the magnitude of recovery should not be overestimated.

Industrial profits can still improve, said Wen Bin, chief economist at China Minsheng. However, there remain uncertainties in terms of the recovery of external demand, domestic demand is still weak, production is slowing down, and the real estate market is sluggish, all of which will have a negative impact on the growth of industrial companies.

Also, last year the industrial profits base line was low and then high, and this may limit the room for recovery later in the year, Wen said.

Domestic demand remains weak, the external environment is still complex and severe, and the foundation for recovery of industrial firms needs to be further consolidated, Yu Weining said.

Next, it is important to promote industrial upgrading, focus on expanding demand, help relieve companies’ difficulties and strengthen the recovery of the industrial economy, Yu said.

Editor: Kim Taylor