You are here

China's industrial profit growth cools for 3rd straight month

2018-08-15t042051z_2128407476_rc1382beb810_rtrmadp_3_china-pollution-steel.jpg
Profit growth for China's industrial firms cooled for a third straight month in July in a further indication that demand in the world's second-biggest economy is cooling even as US trade pressure mounts.

Beijing

PROFIT growth for China's industrial firms cooled for a third straight month in July in a further indication that demand in the world's second-biggest economy is cooling even as US trade pressure mounts.

Weakening consumption, rising credit defaults, high financing costs and escalating Sino-US trade tensions will likely pressure China Inc's profit growth even further in coming months, analysts at Nomura said in a note.

"We expect the economy to get worse before it gets better," they said, noting it will take some time for recent government stimulus and policy easing measures to kick in.

sentifi.com

Market voices on:

Industrial profits in July rose 16.2 per cent from a year earlier to 515.12 billion yuan (S$103 billion), easing from a 20 per cent pace in June and the slowest since March, data from the National Bureau of Statistics (NBS) showed on Monday.

Profit growth slowed in July as producer price inflation moderated, bureau spokesman He Ping said in a statement accompanying the data.

For the first seven months of the year, industrial firms reported profits of 3.9 trillion yuan, up 17.1 per cent from the same period last year.

But the strong headline figure is being driven largely by producers and refiners of raw materials such as oil companies and steel mills, which account for roughly two-thirds of the gains.

Smaller firms are facing much tougher business conditions that are squeezing profit margins.

Oil, steel, building materials and chemical sectors were key drivers behind the profit growth in the first seven months of the year. But profit growth in non-ferrous metal smelting and processing, furniture, railway and aircraft manufacturing fell during the same period from a year earlier.

A spate of weaker data in the last few months has shown investment growth has slowed to a record low and consumers are turn more cautious about spending. Industrial output growth has also remained soft.

China's factory price inflation cooled in July amid a slowdown in economic growth, although economists expect punitive Chinese tariffs on US goods to add to wider price pressures in months ahead.

China Petroleum & Chemical Corp, the country's largest refiner, reported its best quarterly profit in years on strong upstream and refining business.

Meanwhile, China's steel market is also enjoying a sustained boom as China continues its production restrictions to crack down pollution. Shanghai rebar steel futures rallied to a seven-year high last week.

Jiangsu Shagang, China's biggest private-owned steel mill, reported a 242.3 per cent increase in net profits for the first half this year, while Shougang in the capital city of Beijing saw net profits rise 50.1 per cent.

The slowdown in China's industrial profits could translate into a weakening in investment in the manufacturing sector, according to Betty Wang, senior China economist at ANZ.

"Downside risks (to fixed-asset investment growth) still outweigh the upside risks," said Ms Wang, adding that a low base from last year should have provided support to Monday's data.

China's investment growth may slow even further in the future and authorities should continue to make good use of fiscal and financial policy, the state planner said on Monday.

However, industrial profit growth is unlikely to see a huge decline, Ms Wang said. China's efforts to reduce industrial overcapacity and reduce air pollution will continue to help boost commodity prices.

China is also speeding up infrastructure spending to boost investment growth and keeping liquidity reasonably ample to prop up growth, while ruling out a return to strong stimulus seen in the past which could add to high debt levels.

Officials have also said that they will offer more help to companies which are struggling with high costs or having trouble obtaining financing.

Finance Minister Liu Kun told Reuters last week that taxes and fees will be cut by more than 1.1 trillion yuan this year.

US and Chinese officials ended two days of talks on Thursday with no major breakthrough as their trade war escalated with activation of another round of duelling tariffs on US$16 billion worth of each country's goods.

Earlier this month, Ning Jizhe, head of the Statistics Bureau, said China is confident and capable of meeting the full year's economic goal of around 6.5 per cent, according to a Xinhua report.

"We will take targeted measures to cope with impact on employment that might brought by trade frictions," said Mr Ning.

Profits earned China's state-owned industrial firms increased 30.5 per cent year-on-year in January-July period, slowing from a 31.5 per cent growth in the first half.

The liability to asset ratio for state-owned industrial firms was at 59.4 per cent by the end of July, lowest since 2016 and down 1.3 percentage points year-on-year.

Liabilities of industrial firms rose 6.5 per cent on an annual basis as of end-Judy, according to the Statistics bureau. REUTERS