China's industrial profits jump 24%

A worker cleaning a diesel engine part at a factory in Qingdao in China's eastern Shandong province. China's industrial profits last month jumped 24 per cent year on year to 672 billion yuan (S$137.5 billion).
A worker cleaning a diesel engine part at a factory in Qingdao in China's eastern Shandong province. China's industrial profits last month jumped 24 per cent year on year to 672 billion yuan (S$137.5 billion).PHOTO: AGENCE FRANCE-PRESSE

Biggest gain since 2013 is due to increase in commodity prices and construction boom

BEIJING • Profits at China's industrial companies rose the most in four years last month as commodity prices surged, thanks to a government-backed construction boom that is helping Beijing trim high levels of corporate debt without tripping up the economy.

The upbeat earnings report is another sweetener for the authorities as China focuses on stripping out financial risks from years of credit-fuelled growth and keeping the economy on a steady footing ahead of a crucial Communist Party gathering next month.

Profits last month jumped 24 per cent year on year to 672 billion yuan (S$137.5 billion), the National Bureau of Statistics (NBS) said yesterday. Discounting the combined January-February profit rise of 31.5 per cent, the latest earnings boost would be the biggest single monthly percentage surge since August 2013.

The bureau does not release single-month figures for January-February. Annual profit growth was 16.5 per cent in July.

"The figures are really positive - they show China's efforts to cut down on overcapacity is working well," said Ms Iris Pang, Greater China economist at ING bank in Hong Kong. Crucially, Ms Pang said Beijing is also making headway in reducing debt risks. "When you close down overcapacity factories, you are also deleveraging to an extent."

The robust industrial earnings growth last month was driven by higher prices, particularly in sectors such as oil, steel and electronics, Mr He Ping of the NBS said in a statement. He estimated that surging prices contributed nearly one-third of the new profits last month.

A year-long, government-led construction boom has fuelled demand and prices for building materials, while China's push to cut excess capacity in heavy industries and its war on pollution have also appeared to intensify a short-term supply shortage and higher prices.

For the first eight months of this year, the firms had profits of 4.92 trillion yuan, a 21.6 per cent increase year on year, picking up slightly from the 21.2 per cent annual growth in the January-July period.

A private survey of thousands of Chinese firms by China Beige Book International noted major risks are looming for next year, with a reversal in the commodity boom being one of the top worries.

"It was demand and hot money inflows that kept prices rising. Neither was sustainable and now demand has clearly sputtered," it said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 28, 2017, with the headline 'China's industrial profits jump 24%'. Print Edition | Subscribe