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December 28, 2016

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Home » Business » Economy

China’s industrial sector posts biggest profit rise in 3 months

Source: Agencies | December 28, 2016, Wednesday | Print Edition

CHINA’S industrial sector showed the strongest profit growth in three months in November as companies benefited from rising prices and a low comparative base last year.

Profits of industrial companies in November rose 14.5 percent to 774.6 billion yuan (US$111.7 billion) from a year earlier, the biggest gain since August’s record 19.5 percent jump, the National Bureau of Statistics said yesterday. Profits in October rose 9.8 percent.

The data covered large enterprises with annual revenue of more than 20 million yuan generated from their main operations.

For the first 11 months of this year, the combined profit rose 9.4 percent from the same period of last year, 0.8 percentage points faster than those in the first 10 months.

Bureau statistician He Ping said the sharp boost in November was a result of acceleration in the growth of both industrial production and sales, a significant rise in producer prices and the strong performance by the electronics, special equipment manufacturing and oil refining sectors.

China’s Producer Price Index, which measures costs for goods at the factory gate, continued to grow in November, rising by a five-year high of 3.3 percent year on year.

Among the 41 industries surveyed, 30 posted year-on-year profit growth during the first 11 months, the bureau said.

In November, profits of computer communications and other electronic device manufacturing rose 45.4 percent year on year and those of special equipment manufacturing climbed 17.9 percent, while oil refining, coking and nuclear fuel processing saw profits soar 162.7 percent from a year earlier.

These three sectors lifted industrial profit growth by 6.1 percentage points last month, He said.

Meanwhile, inventories, leverage ratios and corporate costs for major industrial firms all dropped from the same period of last year, pointing to a good sign for future growth, he added.

Between January and November, profits of state-owned enterprises rose 8.2 percent, while those of private companies rose 5.9 percent. Foreign-invested companies posted strong growth of 10.8 percent in profits.

The main business revenue of industrial companies rose 4.4 percent in the first 11 months, and their total assets rose 6.7 percent to 105.8 trillion yuan by the end of November, the bureau said.

‘Unfavorable conditions’

Despite continued growth in industrial profits this year, He said China is still facing “unfavorable conditions” in boosting quality and efficiency in the industrial area.

“Industrial profits rose relatively fast due to a lower base last year, and the growth was overly reliant on a price rebound in raw material industries such as oil refining, and iron and steel,” He said.

Companies are seeing more payments being delayed as accounts receivable at the end of November rose 9 percent from a year earlier. That increase was bigger than the rise in revenue from main operations.

“The difficulty in making repayments is still a relatively large hurdle that limits the production and operation of firms,” He noted.

He expects industrial profits to maintain steady growth as China’s deepening supply-side structural reform will optimize industrial structure and provide new growth impetus.

Yesterday’s data also showed Chinese industrial firms’ liabilities at the end of November were 5.6 percent higher than at the same point of last year, despite rising at a slower pace than assets have.

Nomura Securities analysts were conservative about the longer-term profit outlook, as they wrote in a note: “We do not see signs of a recovery in aggregate demand given a cooling property market and high corporate leverage.”

Analysts also say recent signals from China’s top leaders that more will be done in 2017 to crack down on asset bubbles is putting pressures on raw material prices, casting doubts over the sustainability of such a price rebound.

“The question is whether price rises in recent months resulted from a genuine improvement in demand, or financial speculation,” said Zhou Hao, senior economist at Commerzbank. “From what we are seeing, the leadership apparently thinks it’s the latter.”

Zhou said the government “might introduce new policy measures to curb raw material price growth.”

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