China industrial profits quicken in May, seen fading as finance costs rise

[BEIJING] Profits at China's industrial companies surged 16.7 per cent in May from a year earlier, accelerating from April and defying expectations of a slowdown in the face of rising borrowing costs and a cooling property market.

Profits in May rose to 625.99 billion yuan (S$127.05 billion), the National Bureau of Statistics (NBS) said on its website on Tuesday.

For the first five months of the year, profits reached 2.9 trillion yuan, up 22.7 per cent from the same period of last year and lower than the 24.4 per cent annual growth in the January-April period.

The upbeat growth of industrial earnings in May was largely driven by continued demand for iron ore and other commodities used to feed a year-long construction boom.

An infrastructure spending spree in China has helped spur sales and prices of building materials, reviving profits for long-ailing "smokestack" industries such as steel mills and smelters.

"The quickened growth of China's industrial profits was partly due to a low-base effect at the same time a year earlier, which marked the second slowest growth over the course of last year," stats bureau official He Ping said in a statement accompanying the data.

He added that profit growth in industries such as autos, power and tobacco was expected to rebound.

Operating costs as a proportion of operating revenue rose on an annual basis for a third consecutive month in May, which Mr He said needed to be closely watched.

With producer price inflation reaching its perceived peak, profitability and new investment are seen tapering off this year.

China's factory gate inflation eased for the third straight month in May on sagging prices of raw materials, signalling a broader cooling in economic activity as profits are squeezed by slackening domestic demand and rising financing costs.

Concerns about China grew after Moody's Investors Service downgraded its credit rating last month. The agency said it expects Chinese financial strength will erode in coming years as growth slows and debt continues to rise.

China's statistics bureau said this month economic performance in the January-May period economic laid a solid foundation for achieving the full-year growth target of about 6.5 per cent.

China's strong growth prompted the International Monetary Fund this month to raise its 2017 growth forecast to 6.7 per cent from 6.6 per cent.

Capital Economics, which forecast last year that China's economic rebound would run out of steam early in 2017 as policy support was withdrawn, said last week that the coming slowdown should be "mild" with growth dropping back towards "a sustainable pace".

Still, with half a year left to go, the economy is expected to handily meet its annual growth target without hitting too many bumps, good news for President Xi Jinping ahead of a major political leadership reshuffle later this year.

Industrial companies' liabilities rose 6.5 per cent year-on-year as of end-May, the statistics bureau said.

Profits at China's state-owned firms were up 53.3 per cent at 652.04 billion yuan in January-May, compared with a 58.7 per cent rise in the first four months.

The data includes companies with annual operating revenue of more than 20 million yuan from their main operations.

REUTERS