China industrial profit growth accelerates despite rising price of coal, supply shortages, power rationing

Profits at China’s industrial firms jumped 16.3 per cent year on year to 738.74 billion yuan (US$115.7 billion), quickening from the 10.1 per cent gain in August
China’s industrial sector has been hit by the surging price of coal, supply shortages and power rationing triggered by coal shortages due to emission reduction targets

China’s power crisis

Reuters

Published: 10:36am, 27 Oct 2021

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Profits at China’s industrial firms rose at a faster pace in September despite surging prices and supply bottlenecks, thanks mainly to stellar growth in mining and raw materials industries although some businesses struggled to shake off the high costs.

Profits jumped 16.3 per cent year on year to 738.74 billion yuan (US$115.7 billion) the National Bureau of Statistics (NBS) of China said on Wednesday, quickening from the 10.1 per cent gain reported in August.

The industrial sector has been hit by the surging price of coal, supply shortages and power rationing triggered by coal shortages due to emission reduction targets.

But Beijing has taken a raft of measures to curb elevated metals prices and ease the country’s power crunch, including urging coal miners to boost output and manage electricity demand at industrial plants.

More provinces move to float power prices amid China’s energy crisis

Strong profit rises in mining and raw materials industries drove the headline figures. Profits in the coal mining and washing industry grew 172.2 per cent over the first nine months. The fuel processing industry saw earnings skyrocket 930 per cent over the same period.

Power firms were squeezed however, with profits falling 24.6 per cent between January and September, with tight coal supplies and higher prices of the fuel eroding bottom-lines.

Zhu Hong, an NBS official, said that high commodity prices and supply chain issues continue to weigh on the recovery in firms’ profits.

The problem of profit imbalances between upstream and downstream industries is fairly prominent, and the foundation for the recovery of industrial profits is not yet consolidated

Zhu Hong

“The problem of profit imbalances between upstream and downstream industries is fairly prominent, and the foundation for the recovery of industrial profits is not yet consolidated,” said Zhu.

In October, the government said that it will allow coal-fired power prices to fluctuate by up to 20 per cent from base levels, enabling power plants to pass on more of the high costs of generation to commercial and industrial end users.

For the January-September period, industrial firms’ profits grew 44.7 per cent year on year to 6.34 trillion yuan (US$993 billion), slowing from a 49.5 per cent increase in the first eight months of 2021, the statistics bureau said.

China’s economic growth in the third quarter was the slowest this year, due partly to power shortages and wobbles in the property sector.

Record high factory inflation in September is putting a strain on middle and downstream businesses to pass through costs to consumers.

Analysts polled by Reuters expect the People’s Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.

Liabilities at industrial firms rose 8.2 per cent from a year earlier at the end of September, easing from 8.4 per cent growth as of the end of August.

The industrial profit data covers large firms with annual revenues of over 20 million yuan (US$3.1 million) from their main operations.