China's January-February industrial profit growth strong, but pace slows from 2017

[BEIJING] Profits for China's industrial firms picked up pace in the first two months of the year from December, but still fell short of average growth seen in the whole of 2017, backing expectations growth in the world's second-largest economy is set to cool.

Slowing earnings growth, following a six-year high last year, could deter investment and put further pressure on China's stock markets which have taken a knock in recent sessions on growing fears of a trade war with the United States.

Weaker earnings could also complicate Beijing's campaign to reduce a mountain of debt amassed by its state-owned giants, which dominate its heavy industries.

Industrial profits rose 16.1 per cent year-on-year to 968.9 billion yuan (S$202.6 billion) in the first two months of the year, the National Bureau of Statistics (NBS) said on its website on Tuesday.

The pace of earnings growth picked up from a 10.8 per cent increase in December. It surged 21.0 per cent for 2017 as a whole, the fastest pace since 2011, as a construction boom boosted prices of building materials from steel bars to copper pipes and cement.

ANZ Shanghai-based analyst David Qu said the profit growth rate was "still a good number". "We believe it's highly likely that industrial profits will achieve double-digit growth for the rest of the year despite price slowdown."

Growth picked up speed from December largely due to quickened sales with continued cost-cutting efforts, offsetting weaker prices, He Ping of the statistics bureau said in a statement along with the data.

The government releases combined January and February figures in an effort to smooth out distortions caused by the week-long China New Year, which began in mid-February this year but late January last year.

Strong global demand also benefited China's exporters, though rapidly escalating trade tensions with the United States are clouding the outlook for a repeat performance this year.

Pointing to further profit pressure, Chinese steel futures prices have tumbled to their lowest in eight months on fears of an all-out global trade war and worries about weakening demand at home as the heated property market shows signs of cooling.

Tuesday's data also showed Chinese industrial firms' liabilities increased 6 per cent year-on-year by the end of February from the same period a year earlier to 59.6 trillion yuan, compared with a 5.7 per cent rise as of the end of 2017.

The ratio of liabilities to assets at industrial firms rose to 56.3 per cent from 55.5 per cent at the end of December, highlighting the challenges the government still faces in containing a rapid build-up in corporate debt.

REUTERS