Profits at industrial firms increase 119.7pc

PUBLISHED : Saturday, 27 March, 2010, 12:00am
UPDATED : Saturday, 27 March, 2010, 12:00am

Profit at mainland industrial companies skyrocketed 119.7 per cent in the first two months of this year, powered by the economic recovery.

However, some economists are questioning whether the growth is sustainable.

Industrial companies, which are defined as those generating more than 5 million yuan (HK$5.68 million) in revenue annually, saw profit surge to 486.74 billion yuan in January and February after falling 37.3 per cent in the same period last year during the depths of the global financial crisis, the National Bureau of Statistics said yesterday.

The sharp turnaround, albeit from a lower base of comparison last year, signalled a marked recovery in the mainland economy and consumer demand, the agency said.

'Overall, the profits of industrial firms have just returned to pre-crisis levels,' it said. 'However, some core sectors such as oil exploration, steel and electronics still saw their profits decline compared with the same period in 2008.'

As a result of a 4 trillion yuan government-led spending binge on infrastructure, rural housing, environment projects, exports and other areas, industrial output swung back to 3.8 per cent growth in the January-February period from a 20.7 per cent contraction a year earlier.

Sectors such as oil production, steel, non-ferrous metals and petrochemicals benefited from the inflation of production prices, which grew at 4.9 per cent in the two-month period compared with 3.9 per cent deflation previously.

State-owned enterprises led the recovery in profits, which ballooned 213.6 per cent to 178.03 billion yuan. Profits at shareholding firms grew 125.5 per cent to 259.45 billion yuan, while foreign and Hong Kong/Macau enterprises grew 125.1 per cent to 140.64 billion yuan.

'The growth in industrial profit peaked in the first two months of this year,' Bank of America Merrill Lynch economist Lu Ting said. 'Growth will taper off partly because of a larger base of comparison previously.'

He forecast that the mainland's industrial output would grow 14 per cent this year, driven by higher domestic demand and exports.

This is a more aggressive target than the central government's 11 per cent. Industrial output climbed 8.3 per cent last year.

The central government aims to generate 8 per cent economic growth this year, but Lu forecast 10.1 per cent expansion.

Some economists said rising prices for manufactured goods would also help profits at companies involved in upstream production.

A Morgan Stanley weekly survey tracking consumer and production price indices showed that production prices drifted 1.7 per cent higher in the third week of this month from the week before, led by the 7.2 per cent inflation in mineral products, such as iron ore.

However, Lu said the inflationary pressure on raw materials would adversely affect downstream industrial companies, particularly small and medium-sized enterprises, which might not be able to pass on higher costs to customers.