China industrial profits rise in June but investment challenges grow

A worker checking a toilet seat at a factory in Hangzhou,China.
A worker checking a toilet seat at a factory in Hangzhou,China. PHOTO: AFP

BEIJING (REUTERS) - Profits earned by China's industrial firms rose 5.1 per cent in June from the year earlier, the fastest growth in three months, indicating government spending is supporting the corporate sector though investment headwinds are growing.

Profits in June rose to 616.31 billion yuan (S$125.5 billion), the statistics bureau said on Wednesday (July 27). Profits in the mining sector fell 83.6 per cent in the first half from a year earlier, the National Bureau of Statistics (NBS) said.

Total profits for the first half stood at 3.00 trillion yuan, up 6.2 per cent from the same period a year ago and compared with a 6.4 per cent gain in the January to May period.

"June profits accelerated from May but unfavourable conditions for companies continue to exist," NBS official He Ping said in a statement accompanying the data.

He said firms faced further difficulties accessing capital in June. Profit growth in China's steel sector slowed in June.

The data, which covers large enterprises with annual revenues of at least 20 million yuan, come as investment cools and growth in home prices eased.

China's economy expanded 6.7 per cent in the second quarter, but the slightly better than estimated growth rate may come at a cost of a dangerous rise in both debt costs and inefficient loans to state firms. Private investment remains weak, with high funding costs becoming a major obstacle for private enterprises, according to the state planner.

Across several industrial sectors, lukewarm demand and a campaign aimed at reducing surplus has taken a toll on some of the largest state-owned firms.

Sinopec, the country's largest refiner, last week said crude oil production fell 11.4 per cent on year.

Meanwhile, China National Building Material co. said it expects a substantial drop in profits in the first half due to a fall in cement prices.

Liabilities at China's industrial firms rose 4.6 per cent in June from the same point last year, easing from a 4.9 per cent growth at the end of May.

On Monday, a senior official from the state planner said China should increase government investment, and should not compete with private investment.

Profits at China's state firms fell 8.5 per cent in the first half, the Ministry of Finance said on Monday.