Manufacturers' profits fall, spurring calls for stimulus
By Wang Yanlin |
March 28, 2012, Wednesday
|
Print Edition
Print Edition
PROFITS of Chinese industrial companies declined in the first two months - the first drop since 2009 - which brought calls for more supportive policies to sustain growth in the world's second-largest economy.
Net earnings of Chinese manufacturers fell 5.2 percent from a year earlier to 606 billion yuan (US$96 billion) during January and February, the National Bureau of Statistics said yesterday. The drop contrasted sharply with growth of 31.5 percent last December and last year's overall gain of 25.4 percent.
"Higher labor costs, a stronger yuan, plus shrinking external demand and a moderating domestic economy led to falling profits among Chinese manufacturers," said Li Maoyu, an analyst at Changjiang Securities Co. "However, we should take seasonal factors into consideration as the Spring Festival holiday distorted the figures a bit," he said, referring to the big slowdown from December.
Li suggested data next month will be more accurate to reflect the real conditions in China's economy.
Zhang Zhiwei, a Nomura economist, said pressure is building in China to loosen policy further to support domestic demand, and at least one interest rate cut should be included.
"We believe the government needs to lower interest rates and push investment projects in the coming months," Zhang said in a note. "Reserve requirement ratio reductions would only help to increase loan supply, not solve the problem of weakening demand."
Private business still reported a profit growth of 24.4 percent in the first two months, while earnings of overseas-invested companies slumped 18.9 percent and state-owned enterprises said their profit dived 19.7 percent.
Adrian Mowat, chief Asian and emerging-market strategist at JP Morgan Chase & Co, said last week that China is already in a so-called economic hard landing, citing slower growth in everything from car sales, cement production, steel production and construction.
That judgment was refuted by Zhu Min, deputy managing director of the International Monetary Fund, who said China is still heading toward a soft landing.
China's gross domestic product growth moderated to 8.9 percent in the final quarter of last year, the slowest in 2 1/2 years.
The official data by the bureau also showed China's industrial output, fixed-asset investment and retail sales all weakened in the first two months, and property prices continued to fall in most of the nation's biggest cities.
In the first two months, China's industrial production grew 11.4 percent year on year, 1.4 percentage points slower than that in December.
The HSBC Flash Purchasing Managers' index, a preliminary reading of manufacturing activity, also fell to a four-month low of 48.1 in March, stoking fears that growth in China may be slowing more than expected. A reading below 50 means contraction of industrial activity.
Some economists were still optimistic. Wang Tao with UBS said China's economic growth may slow to 8.2 percent from a year earlier in the first quarter, and that is likely the bottom.
"A rebound in fixed investment, including in social housing and infrastructure, can push up the economy," Wang said.
China has loosened the reins on its monetary policies. In the past four months, the government has cut the reserve requirement ratio twice, hoping to bolster business vitality by allowing banks to put aside less reserves and thus to enrich market liquidity.
Net earnings of Chinese manufacturers fell 5.2 percent from a year earlier to 606 billion yuan (US$96 billion) during January and February, the National Bureau of Statistics said yesterday. The drop contrasted sharply with growth of 31.5 percent last December and last year's overall gain of 25.4 percent.
"Higher labor costs, a stronger yuan, plus shrinking external demand and a moderating domestic economy led to falling profits among Chinese manufacturers," said Li Maoyu, an analyst at Changjiang Securities Co. "However, we should take seasonal factors into consideration as the Spring Festival holiday distorted the figures a bit," he said, referring to the big slowdown from December.
Li suggested data next month will be more accurate to reflect the real conditions in China's economy.
Zhang Zhiwei, a Nomura economist, said pressure is building in China to loosen policy further to support domestic demand, and at least one interest rate cut should be included.
"We believe the government needs to lower interest rates and push investment projects in the coming months," Zhang said in a note. "Reserve requirement ratio reductions would only help to increase loan supply, not solve the problem of weakening demand."
Private business still reported a profit growth of 24.4 percent in the first two months, while earnings of overseas-invested companies slumped 18.9 percent and state-owned enterprises said their profit dived 19.7 percent.
Adrian Mowat, chief Asian and emerging-market strategist at JP Morgan Chase & Co, said last week that China is already in a so-called economic hard landing, citing slower growth in everything from car sales, cement production, steel production and construction.
That judgment was refuted by Zhu Min, deputy managing director of the International Monetary Fund, who said China is still heading toward a soft landing.
China's gross domestic product growth moderated to 8.9 percent in the final quarter of last year, the slowest in 2 1/2 years.
The official data by the bureau also showed China's industrial output, fixed-asset investment and retail sales all weakened in the first two months, and property prices continued to fall in most of the nation's biggest cities.
In the first two months, China's industrial production grew 11.4 percent year on year, 1.4 percentage points slower than that in December.
The HSBC Flash Purchasing Managers' index, a preliminary reading of manufacturing activity, also fell to a four-month low of 48.1 in March, stoking fears that growth in China may be slowing more than expected. A reading below 50 means contraction of industrial activity.
Some economists were still optimistic. Wang Tao with UBS said China's economic growth may slow to 8.2 percent from a year earlier in the first quarter, and that is likely the bottom.
"A rebound in fixed investment, including in social housing and infrastructure, can push up the economy," Wang said.
China has loosened the reins on its monetary policies. In the past four months, the government has cut the reserve requirement ratio twice, hoping to bolster business vitality by allowing banks to put aside less reserves and thus to enrich market liquidity.
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