Industrial firms' profits in China up 16.7% in May

BEIJING • Profits at China's industrial companies surged 16.7 per cent last month from a year earlier, accelerating from 14 per cent in April in spite of expectations of a slowdown as borrowing costs rise and the property market cools.

For the first five months of the year, profits reached 2.9 trillion yuan (S$590 billion), up 22.7 per cent from the same period of last year although the growth pace was lower than the 24.4 per cent annual rate for January to April this year.

"The quickened growth of China's industrial profits was partly due to a low-base effect at the same time a year earlier, which marked the second slowest growth over the course of last year," statistics bureau official He Ping said yesterday.

Operating costs as a proportion of operating revenue rose on an annual basis for a third consecutive month in May, which Mr He said needed to be closely watched.

Profit growth at private enterprises and foreign enterprises fell to 14.0 per cent and 18.9 per cent respectively in the year to May, from 14.3 per cent and 19.8 per cent in January to April.

Nomura analysts noted this growth was driven by "increased investment gains" and "net non-operating incomes", terms often used to refer to property profits. "Our concerns over growth quality remain," they said. Profits at China's state-owned firms enterprises (SOE) were up 53.3 per cent at 652.04 billion yuan in January to May, compared with a 58.7 per cent rise in the first four months. "The low base is likely to support high profit growth of SOEs for a few more months," Nomura said.

China's factory gate inflation eased for the third straight month in May on sagging prices for raw materials, signalling a broader cooling in economic activity as profits are squeezed by slackening domestic demand and rising financing costs. "The return of PPI deflation should also lead to lower industrial profit growth," Nomura said.

Concerns about China grew after Moody's Investors Service downgraded its credit rating last month. The agency said it expects Chinese financial strength will erode in coming years as growth slows and debt continues to rise. China's statistics bureau said this month that economic performance in the January to May period lay a solid foundation for achieving the full-year growth target of about 6.5 per cent.

The International Monetary Fund this month raised its growth forecast for the year to 6.7 per cent from 6.6 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 28, 2017, with the headline 'Industrial firms' profits in China up 16.7% in May'. Print Edition | Subscribe