Industrial profit growth accelerates in May

Rising operating costs need to be watched, NBS official says

Profits at China’s industrial companies surged 16.7 percent year- on- year in May, surpassing the 14 percent growth in April and confounding expectations of a slowdown amid higher borrowing costs and a cooling property market, the National Bureau of Statistics ( NBS) said Tuesday.

For the first five months of the year, profits reached 2.9 trillion yuan ($ 424 billion), up 22.7 percent year- on- year, although the growth pace was lower than the 24.4 percent annual rate for January- April 2017.

“The quickened growth of China’s industrial profits was partly due to a low base of comparison. The year- earlier rate was the second- slowest growth over the course of last year,” He Ping of the NBS said.

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

Profit growth at private enterprises and foreign enterprises fell to 14.0 percent and 18.9 percent respectively in the first five months, from 14.3 percent and 19.8 percent in JanuaryApril.

Nomura analysts said that growth was driven by “increased investment gains” and “net non- operating incomes,” terms often used to refer to property profits.

“Our concerns over growth quality remain,” they said.

Profits at State- owned enterprises ( SOEs) rose 53.3 percent to 652.04 billion yuan in January- May, compared with a 58.7 percent rise in the first four months.

“The low base is likely to support high profit growth of SOEs for a few more months,” Nomura said.

Wholesale inflation eased for the third straight month in May as raw material prices fell, signaling a broader economic slowdown as profits were squeezed by falling domestic demand and rising financing costs.

Concerns about China grew after US- based ratings agency Moody’s Investors Service downgraded its credit rating last month.

The agency said that it expected Chinese financial strength would erode in coming years as growth slows and debt continues to rise.

The NBS has said that economic performance in the first five months of the year laid a solid foundation for achieving the full- year GDP growth target of about 6.5 percent.

The IMF earlier this month raised its 2017 growth forecast to 6.7 percent from 6.6 percent.

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 predicted slowdown would be “mild” with growth dropping back toward “a sustainable pace”.