China industrial profits jump 24% in biggest gain since 2013

Employees assemble OnePlus X smartphones at the OnePlus manufacturing facility in Dongguan, China, on Dec 17, 2015.
Employees assemble OnePlus X smartphones at the OnePlus manufacturing facility in Dongguan, China, on Dec 17, 2015.PHOTO: BLOOMBERG

BEIJING (BLOOMBERG) - Chinese industrial firms extended this year's earnings surge, suggesting resilience in the world's second-largest economy endures even amid slowing factory output and investment.

Industrial profits increased 24 per cent in August from a year earlier, the most in four years, compared with the 16.5 per cent pace a month earlier, the statistics bureau said on Wednesday (Sept 27). Profits in the first eight months of the year climbed 21.6 per cent from a year earlier, with statistics officials attributing the jump to faster producer-price inflation and lower costs.

"This reflects a positive outcome of supply-side reforms that aim to take out overcapacity," said Iris Pang, an economist at ING Groep in Hong Kong. "Meantime, costs are declining as prices of some materials head down."

Sustained profitability offers policy makers room to rein in excessive industrial capacity and curb speculative borrowing ahead of the key Party Congress next month. Leaders also must balance reform with growth, which showed signs of faltering for a second month in August.

Profit growth accelerated as producer inflation picked up amid a decline in input costs, the statistics bureau said in a statement. Oil, steel and electronics led the gains, while corporate leverage has shown a decline, it said.

Still, the latest readings on factory inflation and the manufacturing outlook both exceeded estimates, and data released on Tuesday show profits of state-owned enterprises rose 21.7 per cent from a year earlier in the first eight months of the year. Coal, oil and transportation companies saw bigger gains, whereas power industry earnings fell, the government said.

"Supply-side reform and robust PPI have improved profitability of upstream companies, especially local state-owned enterprises," said Yao Shaohua, an economist at ABCI Securities in Hong Kong. He said profit growth is likely to decelerate in coming months as environmental curbs begin to weigh on both supply and demand.