China Economy

China economy

China’s industrial profits growth hits 3-year high as steel, auto earnings surge

Profits of industrial firms jumped 19.5 per cent in August from a year ago to 534.8 billion yuan, the biggest gain since August 2013

PUBLISHED : Tuesday, 27 September, 2016, 4:31pm
UPDATED : Tuesday, 27 September, 2016, 11:01pm

Profits in China’s industrial sector in August rose at the fastest pace in three years, supporting a growing view that the world’s second-biggest economy may be stabilising.

Profits of industrial firms jumped 19.5 per cent from a year earlier to 534.8 billion yuan (US$80 billion), the National Bureau of Statistics (NBS) said on Tuesday, the biggest gain since August 2013.

For the first eight months of 2016, profits rose 8.4 per cent year-on-year, up from 6.9 per cent for the first seven months, and compared to a fall of 2.3 per cent recorded last year.

The statistics bureau said that steel, oil refining and auto industries were the driving forces behind the recent surge in profits. The data covers firms with annual revenues of more than 20 million yuan.

The bureau attributed the August profit jump to faster production and sales growth, a rebound in producers’ ex-factory prices and falling production costs. Poor profits in the same month a year ago due to slow sales, falling product prices and rising costs at the time, also boosted the latest figure.

GDP growth in the third quarter could be faster than the first or second, in the range of 6.7 to 6.8 per cent
Liao Qun, chief economist, Citic Bank International

The mainland’s auto sector posted year-on-year profit growth of 43.9 per cent in August, while the steel sector, helped by product price recovery in the wake of capacity reduction, saw August profit rise by 21 billion yuan, the highest year-on-year growth so far this year, it added.

JP Morgan analysts said in a report that they expect the strong profit rebound to continue until year-end, helped by a continuing reversal of ex-factory price deflation, which may return to inflationary territory for the first time since March 2012.Ex-factory price refers to the cost of goods at the source of manufacture, not including extra charges such as shipping or taxes.

China’s economy grew 6.9 per cent last year, the slowest in 25 years, as global demand ebbed. It has shown some signs of stabilisation in recent months after billions of dollars in government spending and a property boom in the country’s top-tier cities. Manufacturing unexpectedly expanded in August.

“Gross domestic product growth in the third quarter could be faster than the first or second, in the range of 6.7 to 6.8 per cent,” said Liao Qun, chief economist at Citic Bank International.

Whether the government will do more in the fourth quarter to stimulate the economy remains to be seen, he said.

China’s central bank has held back from further loosening credit conditions, concerned about froth in the housing and financial markets as well as capital outflows.

“China’s growth momentum has stabilised, backed by the strong performance of the housing market,” ANZ wrote in a note on Tuesday.

“However, the vibrancy of the property market is a double-edged sword. Massive property sales have been a growth driver, but this has resulted in surging mortgage loans and financial risk.”

In line with the improving outlook, the Asian Development Bank on Tuesday raised its growth forecast this year for China to 6.6 per cent from its last estimate of 6.5 per cent, citing fiscal and monetary stimulus measures.