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March 28, 2017

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Industrial profits up most in nearly 6 years

PROFITS at China’s major industrial companies rallied in the first two months of this year to pass the 1 trillion yuan (US$145 billion) mark for the first time on rising commodity prices.

Industrial profits surged 31.5 percent year on year in January and February combined — the fastest pace in nearly six years — to 1.02 trillion yuan, the National Bureau of Statistics said yesterday.

That compared with a 2.3 percent rise in December and an 8.5 percent annual increase in 2016.

He Ping, a bureau analyst, attributed the soaring growth to higher industrial production, a sharp hike in prices and lower business costs.

Coal miners, oil refiners and chemical producers led the increase, which was boosted by soaring raw material prices, He said.

Profits of state-owned companies in the commodity industries doubled from a year ago and contributed to half of the overall increase in profits.

The increase in industrial profits was due to supply-side reform that eliminated some overcapacity and cut costs for companies,” Bank of Communications said in a note.

Producer prices increased at the fastest pace since 2008 in February on the back of stronger demand and government-mandated reductions in excess capacity.

The Producer Price Index, a measure of factory gate inflation, rose 6.9 percent in January and 7.8 percent in February boosted by strong raw material prices.

However, most economists and even the statistics bureau believe price gains may soon start to slow.

“The base effects are not going to be as flattering in coming quarters. We’re going to see a decline in profit growth and producer price inflation from now onwards,” says Julian Evans-Pritchard, an economist at Capital Economics in Singapore.

“We shouldn’t get too excited about some of these growth rates.”

Liabilities of industrial companies rose 6.6 percent year on year as of end-February.

The statistics bureau gives combined figures for the first two months of each year to smooth out seasonal distortions caused by the long Chinese New Year holidays, when most companies shut down for a week or more.


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