China's industrial profits extend falling spell

4.7% decline in December the third-biggest fall in more than three years, data shows

BEIJING • Profits at industrial companies in China fell for a seventh month, extending a record streak of declines, as demand and sales weakened amid the economic slowdown.

Total profits of China's industrial enterprises fell 4.7 per cent in December from a year earlier, the National Bureau of Statistics (NBS) said yesterday.

That compared with a 1.4 per cent drop in November and was the third-biggest fall in more than three years, based on previously reported NBS data since 2011.

A main reason for the drop was "weak demand, which led to significant deceleration in production and sales", said the NBS in a statement with the data, which includes state-owned and private enterprises. "Significantly lower prices of industrial products exacerbated the drop."

The report showed the worst losses were concentrated in industries with the most excess capacity such as metals and mining.

China's stocks fell to a 13-month low yesterday, as the report raised concern the economic slowdown is deepening. The Shanghai Composite Index closed 0.5 per cent down at 2,735.56, extending Tuesday's 6.4 per cent plunge.

BAD SITUATION MADE WORSE

Weak demand... led to significant deceleration in production and sales. Significantly lower prices of industrial products exacerbated the drop.

CHINA'S NATIONAL BUREAU OF STATISTICS, in a statement

Airlines and power producers led declines after industrial profits slumped 4.7 per cent last month, and analysts said a weaker yuan could further hurt earnings of companies with debt in US dollars.

Strategists and analysts point to the growth slowdown as the reason why the Shanghai Composite may keep falling until it levels off around the 2,500 mark.

Slowing Chinese economic growth is hurting the earnings of domestic companies as well as global firms, with Apple forecasting a sales decline for the first time in more than a decade.

China's leaders are working to reduce surplus industrial capacity in state enterprises,including planning major cuts to steel production capacity, even as they fight to prop up the slowest growth in a quarter of a century.

"The overcapacity sectors were hit the hardest," Commerzbank economist Zhou Hao in Singapore wrote. "Monetary policy will have to remain extremely relaxed to help reduce the borrowing costs for the corporates."

Full-year industrial profits fell 2.3 per cent last year from a year ago, NBS said. Mining sector profits plunged 58.2 per cent, led by a 75 per cent slide for oil and natural gas sector earnings and a 65 per cent decline for coal companies.

Those losses were offset by a 2.8 per cent gain for manufacturing profits last year, which was led by a 9.1 per cent rise for food firms.

State-owned enterprises registered a profit drop of 21.9 per cent for the full year, compared with a 3.7 per cent rise in the earnings for privately owned firms.

"The dwindling profit gains in these industries may soon turn into net losses," said chief China economist Zhao Yang at Nomura Holdings in Hong Kong.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on January 28, 2016, with the headline 'China's industrial profits extend falling spell'. Print Edition | Subscribe