China's industrial profit growth at slowest in 7 months

BEIJING • Earnings at China's industrial firms grew at their slowest pace in seven months last month, as demand and producer price gains eased in further confirmation of ebbing growth in the world's second-largest economy.

The lower income underscores a delicate balancing act for the authorities as they extend a campaign to reduce China's reliance on credit-intensive investment without imperilling the economy.

Profits last month rose 14.9 per cent to 785.8 billion yuan (S$160.5 billion), the National Bureau of Statistics said on its website yesterday. It marked the slowest monthly growth rate since April's 14 per cent.

Earnings were pressured last month by a slower pace of price rises compared with previous months, Mr He Ping of the statistics bureau said in a statement along with the data release.

He noted that last month's decline in producer price inflation to 5.8 per cent from 6.9 per cent in October was one of the biggest of the year.

"Previous price increases were concentrated in upstream industries like coal and steel. Inflation in those areas is slowing, and the transmission of higher prices to downstream industries hasn't been very strong, which hurts profit margins,"said BOC International economist Ye Bingnan.

More than half of the increase in profits from January to November came from coal mining and washing, iron and steel smelting and processing, chemicals, and oil and natural gas extraction, Mr He said.

While the industrial sector has enjoyed a year-long construction boom that has fuelled demand and prices for building materials in a boost to growth, a government-led battle to clean toxic air and a crackdown on financial risks have started to drag on China's economy.

Chinese steel makers in 28 cities have been ordered to curb output between mid-November and mid-March. A campaign to promote clean energy by converting coal to natural gas has also hampered manufacturing activity in northern cities due to insufficient supply and high prices.

Chinese iron ore and coke futures stretched losses on Tuesday as steel prices fell further, weighed down by seasonal weakness in demand in the world's top producer during winter.

For the first eleven months of the year, profits reached 6.875 trillion yuan, up 21.9 per cent from the same period and lower than the 23.3 per cent annual growth in the January-October period.

Research firm China Beige Book said in a survey out yesterday that with demand strong and prices holding up, Chinese firms continued to ramp up new capacity and production in the fourth quarter. However, it also showed a slowdown in hiring and wages growth in a further sign of slackening economic activity.

China has defied market expectations with 6.9 per cent growth in the first nine months of the year amid the construction boom and solid exports.

A slowdown has started to take hold in the last few months as the property sector cools and credit growth ebbs, with Beijing focused on controlling corporate leverage and defusing financial risks.


A version of this article appeared in the print edition of The Straits Times on December 28, 2017, with the headline 'China's industrial profit growth at slowest in 7 months'. Print Edition | Subscribe