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Industrial profits battered by tight credit, slowing sales
By Wang Yanlin |
September 27, 2011, Tuesday
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Online Edition
Online Edition
PROFIT growth in China's industrial companies continued to weaken in the first eight months amid tightened credit and contracting manufacturing activities, the National Bureau of Statistics said today.
Net earnings among industrial companies expanded 28.2 percent from a year earlier to 3.23 trillion yuan (US$503 billion) in the year to August. The pace slowed further from 28.3 percent in the first seven months and 28.7 percent in the first half.
"The moderating pace of profit-making among manufacturers may linger when production costs continue to rise and prudent monetary policies are not soon to exit," said Li Maoyu, an analyst at the Changjiang Securities Co. "It is an increasingly tough time for producers of real products."
According to earlier media reports, at least seven company bosses in Wenzhou of eastern Zhejiang Province have fled the city in the past two weeks because of inability to pay debts. Most of the bosses were in the manufacturing industry and each had borrowed hundreds of millions of yuan from banks as well as private creditors.
Wenzhou is a city famous for small and medium-sized enterprises. Its private lending has been booming after the country's tight monetary policies late last year started making it difficult for smaller firms to get credit.
Cui Li, an economist at the Royal Bank of Scotland, said it was not hard to understand the need for private lending, given the situations for trapped SMEs.
"SMEs try to become more competitive amid a depressed global market by upgrading their products and injecting more capital in research and development," Cui said. "But it needs money while money can hardly be obtained from banks."
Private lending rates in Wenzhou have rocketed, but profit margins of SMEs stayed low and many of them were thus driven out of the market.
Meanwhile, production costs remained high. The Producer Price Index, a factory-gate measurement of inflation, climbed 7.3 percent from a year earlier. It eased a bit from the pace of 7.5 percent in July but was still higher than June's 7.1 percent.
A preliminary reading for the HSBC Purchasing Managers' Index, an indicator of the industrial sector's operating conditions, showed that China's manufacturing activities may shrink again this month.
The HSBC Flash PMI, released last week, settled at 49.4 in September, down from the final HSBC PMI of 49.9 in August. A reading below 50 means contraction.
Net earnings among industrial companies expanded 28.2 percent from a year earlier to 3.23 trillion yuan (US$503 billion) in the year to August. The pace slowed further from 28.3 percent in the first seven months and 28.7 percent in the first half.
"The moderating pace of profit-making among manufacturers may linger when production costs continue to rise and prudent monetary policies are not soon to exit," said Li Maoyu, an analyst at the Changjiang Securities Co. "It is an increasingly tough time for producers of real products."
According to earlier media reports, at least seven company bosses in Wenzhou of eastern Zhejiang Province have fled the city in the past two weeks because of inability to pay debts. Most of the bosses were in the manufacturing industry and each had borrowed hundreds of millions of yuan from banks as well as private creditors.
Wenzhou is a city famous for small and medium-sized enterprises. Its private lending has been booming after the country's tight monetary policies late last year started making it difficult for smaller firms to get credit.
Cui Li, an economist at the Royal Bank of Scotland, said it was not hard to understand the need for private lending, given the situations for trapped SMEs.
"SMEs try to become more competitive amid a depressed global market by upgrading their products and injecting more capital in research and development," Cui said. "But it needs money while money can hardly be obtained from banks."
Private lending rates in Wenzhou have rocketed, but profit margins of SMEs stayed low and many of them were thus driven out of the market.
Meanwhile, production costs remained high. The Producer Price Index, a factory-gate measurement of inflation, climbed 7.3 percent from a year earlier. It eased a bit from the pace of 7.5 percent in July but was still higher than June's 7.1 percent.
A preliminary reading for the HSBC Purchasing Managers' Index, an indicator of the industrial sector's operating conditions, showed that China's manufacturing activities may shrink again this month.
The HSBC Flash PMI, released last week, settled at 49.4 in September, down from the final HSBC PMI of 49.9 in August. A reading below 50 means contraction.
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