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March 28, 2019

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Seasonal factors behind decline in industrial profits

CHINA’S major industrial firms reported falling profits in the January-February period, due to price and seasonal factors, but continued to see progress in structural upgrading and deleveraging, data showed yesterday.

Combined profit of industrial companies with annual revenue of more than 20 million yuan (US$3 million) dropped 14 percent year on year in the first two months of this year to 708.01 billion yuan, compared with the 16.1 percent growth in the same period of last year, the National Bureau of Statistics said.

Compared with the first two months in 2018, this year’s Spring Festival holiday had a longer impact on industrial production as it came earlier this year, said Zhu Hong, a senior statistician at the bureau. “After being adjusted for the Spring Festival factor, the profits of major industrial firms were basically flat or slightly down from the same period of last year,” Zhu said.

The automobile, petroleum processing, steel and chemical industries saw profits markedly pared by falling product prices, dragging the overall industrial profit growth down 14.2 percentage points, Zhu said.

In January and February, the factory-gate prices fell 0.4 percent year on year in the auto industry. The prices also dropped 1.3 percent in the petroleum-processing industry, 2.5 percent in the steel sector and 2.3 percent in the chemical industry.

Excluding the four industries, the overall industrial profit could have posted an increase of 0.2 percent year on year, according to the statistics bureau.

Apart from those factors, the profit decline was also a result of adjustments in the official statistical caliber and stronger efforts to ensure data quality, Huatai Securities said in a research note.

On the positive side, consumer product manufacturers and equipment producers maintained relatively fast profit growth, reflecting structural improvement.

Profits of major consumer goods manufacturers rose 5.8 percent year on year. Major special-purpose equipment producers recorded a 14 percent profit growth, while electrical machinery and device producers’ profits climbed 10.9 percent.

The structural change was in line with a shift in the country’s economic growth drivers from exports and investment to domestic consumption and high-end industries.

Yesterday’s data also showed progress in China’s bid to help reduce corporate leverage through supply-side structural reform. The leverage ratio continued to fall as the debt-to-asset ratio fell 0.2 percentage points to 56.9 percent at the end of February.

Among them, the debt-to-asset ratio of state-owned industrial companies slipped 1 percentage point from a year earlier to 58.6 percent, indicating that the deleveraging of state-owned enterprises has achieved remarkable results, Zhu said.

Chinese authorities have pledged to stick with supply-side structural reform and rolled out a raft of measures to cut taxes and fees for companies.


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