Industrial profits in first fall since 2009

PUBLISHED : Wednesday, 28 March, 2012, 12:00am
UPDATED : Wednesday, 28 March, 2012, 12:00am


The mainland's industrial sector saw profits fall in the first two months of the year, marking its worst performance since the world's second-biggest economy was still feeling the impact of the global financial crisis.

Profits declined 5.2 per cent in January and February, the first slide since the third quarter of 2009 when the economy began to recover from the global financial crisis.

Industrial enterprises of significant scale - defined as those with annual turnover of at least 20 million yuan - reported a total profit of 606 billion yuan (HK$742.6 billion), down 5.2 per cent from the same two months of last year, the National Bureau of Statistics said.

January and February economic statistics are usually analysed in aggregate, to eliminate distortion caused by the fact that the Lunar New Year - when economic activities slow down dramatically - falls on a different month in different years.

The decline in profit in the two months was despite a 13.4 per cent rise in sales to 12.08 trillion yuan, indicating a squeeze in profit margin. Total accounts receivables grew 18.1 per cent year on year, faster than that of sales, suggesting it took longer on average for manufacturers to retrieve payment from customers.

The poor industrial profit figure, a sharp contrast to a 25.4 per cent growth last year from 2010, together with recently-released weak export, industrial output and manufacturing data, pointed to slower-than-expected economic growth and the need for Beijing to loosen monetary policy and increase government spending.

'The main culprit for this has been the sharp deceleration in export growth ... meanwhile, domestic demand may yet weaken, as the impact of Beijing's sustained effort to cool down property prices has yet to fully unfold,' wrote HSBC chief economist Qu Hongbin in a research note.

He expects the People's Bank of China to cut the percentage of funds banks must set aside as reserves, instead of lending them out, by 1 percentage point, to 19 per cent, give tax breaks and unveil more government spending in the first half of the year to prop up the slowing economy.

Among 41 industries covered by the bureau's survey, 23 showed an increase in profit, one had flat earnings, 14 saw lower profit, one went from profit into loss and two saw losses deepen, the bureau said.

Industries with higher profits included oil and gas, with earnings growth of 15.5 per cent; food processing, with a 13.3 per cent rise; and power, with a 21.1 per cent rise.

Earnings declines were seen in chemicals manufacturing, with a 28.8 per cent fall; steel smelting and processing, with a 94 per cent plunge; computers, telecommunications and other electronic equipment, with a 40.8 per cent drop; and vehicles, with a 6.5 per cent fall.

Oil refining and nuclear fuel processing saw profits turn to losses. In the oil and gas sector, producers benefited from rising crude oil prices. The benchmark Brent price rose 13.7 per cent year on year in the first two months to US$114.55 a barrel.

But this was bad news for oil refiners, since Beijing has lifted fuel retail prices later and by a smaller amount relative to crude prices to tame inflation. China Petroleum & Chemical (Sinopec) chief financial officer Wang Xinhua said on Monday that its refining division remained in the red in this year's first two months, after raking in losses for most of last year.

Power generators, which suffered widespread losses last year due to state control on prices, have done much better this year, after Beijing raised prices to offset higher coal costs and coal prices fell. Huaneng Power International chief accountant Zhou Hui said its domestic plants returned to the black in the first two months of the year after sustaining losses last year.

Running down of inventory by customers was the likely reason behind the sharp plunge in sales and profits for smelters and processors of steel, said Bank of America Merrill Lynch economist Lu Ting.


The plunge in profit for the steel smelting and processing sector in January and February