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July 28, 2017

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Growth in industrial profits quickens

CHINA’S major industrial companies posted faster profit growth in June amid higher sales and increased efficiency, the National Bureau of Statistics said yesterday.

They reported a profit rise of 19.1 percent year on year to 727.8 billion yuan (US$108 billion) last month, 2.4 percentage points faster than in May, data showed.

Bureau statistician He Ping attributed the acceleration to faster growth in product sales, slower increases in the cost of raw materials, an improved industrial structure and greater efficiency.

As evidence of the effects of China’s ongoing supply-side structural reform, high-tech and equipment manufacturing industries are contributing more to the profit growth, the bureau said.

Equipment manufacturing took a 40.7 percent share of profits in June, up 11.3 percentage points compared to May, while mining accounted for 22.1 percent, down 13.4 percentage points.

Companies have improved their profitability, lowered costs and cut their debt ratio as result of the reforms.

The bureau’s figures showed that 38 of 41 industries surveyed reported a growth in profits, led by coal and metal industries.

For the first half combined, the profits rose 22 percent to 3.63 trillion yuan. Although profit growth slowed from 22.7 percent in the January-May period, it far exceeded last year’s 8.5 percent increase.

Profits at China’s state-owned industrial enterprises were up 45.8 percent at 805.5 billion yuan in the first half, compared with a 53.3 percent rise in the first five months. Private companies reported a 14.8 percent increase in profits to 1.19 trillion yuan in the first half, compared with 14 percent in the first five months.

The industrial sector, which accounts for about a third of China’s GDP, rebounded last year after profits declined in 2015, helped by government efforts to cut overcapacity.

“China’s industrial profits would maintain a steady medium-high growth of 15 percent to 20 percent,” China Merchants Securities said in a research note, although it predicted a slight retreat in accumulated profit growth next month.

In the January-June period, companies also reported healthier balance sheets. The average collection period for accounts receivable decreased from 38.1 days a year earlier to 37 days.

The corporate leverage ratio continued to decline. Debt-asset ratios of major industrial firms dropped 0.8 percentage points year on year to 55.9 percent.

Despite a general improvement, data related to financing costs rose, indicating higher funding pressure on companies, He said.

In June, financial expenses rose 9.7 percent year on year, up 4.6 percentage points from May.

China’s economy expanded 6.9 percent for the first half of 2017, with consumption and services, together with new innovation-driven economic sectors, taking up larger roles in the economy.

On Monday, the International Monetary Fund raised China’s growth forecast for 2017 and 2018 to 6.7 percent and 6.4 percent.

The Asian Development Bank also upgraded its forecasts to 6.7 percent for 2017 and 6.4 percent for 2018.

While acknowledging positive changes, Chinese policy-makers have called for more focus on hidden risks to promote long-term sustainable growth.

At a Politburo meeting on Monday, the Chinese leadership stressed that there were still contradictions and problems within the economy, promising to take further measures to address long-standing issues such as mounting local government debt and rampant financial irregularities.


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