Industrial firms see their gains shrink 9.9%

PROFITS at China’s industrial firms shrank at their fastest pace in eight months in October, tracking sustained drops in producer prices and exports.

Industrial profits fell 9.9 percent in October year-on-year to 427.56 billion yuan (US$60.74 billion), data released by the National Bureau of Statistics showed yesterday, marking the biggest drop since January-February period and compared with a 5.3 percent decline in September.

The fall was mainly due to a widening decrease in producer prices for manufactured goods, and slower production and sales growth, said NBS senior statistician Zhu Hong.

“The big drop in October profits suggests the real economy is still facing plenty of difficulties,” said Nie Wen, economist at Shanghai-based Hwabao Trust, adding that the country’s industrial firms now face a double whammy of falling prices and higher funding costs.

Profit declines for the manufacturing sector deepened in October, as margins contracted by 4.9 percent in the JanuaryOctober period, compared with a 3.9 percent drop in the first nine months of the year.

For January-October, industrial firms’ profits fell 2.9 percent from a year earlier to 5.02 trillion yuan, compared with a 2.1 percent decline in January-September, Zhu said.

Specifically, profits of state-owned industrial firms dipped 12.1 percent from one year earlier to 1.47 trillion yuan, while those in the private sector gained 5.3 percent year on year to 1.39 trillion yuan in the first 10 months.

High-tech manufacturing industry saw improving profitability during the first 10 months of the year, reflecting the country’s achievement in industrial upgrading and economic restructuring.

Profits of China’s major high-tech manufacturing companies rose 7.5 percent year on year from January to October, compared with a 6.3-percent growth seen in the first nine months, NBS data showed.

Equipment manufacturing and strategic emerging sectors also saw their profit growths accelerate during the 10month period.

Data showed that private and small industrial companies reported stable profit growth during the period, up 5.3 percent and 8.8 percent, respectively.

“China’s economy has been transitioning from a phase of rapid growth to one of high-quality development, which has created opportunities for new industries, such as high-tech manufacturing,” said Yu Fenghui, an economist and columnist.

Better profitability in such sectors showed that China’s strategy of upgrading from low-end manufacturing to high-end industries worked, Yu said.

Buoyed by robust demand from home and abroad, the high-tech manufacturing industry will play a bigger role in driving the growth of the whole manufacturing sector, said Chen Li, an analyst with Chuancai Securities.

As China continues to optimize the business environment and open up its market, industrial companies are expected to perform better next year, Yu noted.

Meanwhile, mining sector profit growth also moderated. During the period, profits of the mining industry added 2.4 percent to 472.13 billion yuan, while the manufacturing industry dropped 4.9 percent to 4.13 trillion yuan.

Profits in 30 of the 41 industrial sectors surveyed rose compared with one year earlier, according to the NBS.

The data covers firms with more than 20 million yuan in annual revenue from their main operations.

China’s producer price index, seen as key indicator of corporate profitability, posted its sharpest fall in more than three years in October as prices for raw materials weakened. The country’s official manufacturing PMI also showed a contraction in activity for the sixth straight month in September with new export orders falling for their 17th straight month.

China’s exports fell in annual terms for the third straight in October, albeit at a slower-than-expected rate.

“We expect industrial profit growth to remain sluggish, given the deteriorating growth outlook,” said Nomura analysts in a note to clients after the data release.

China’s central bank has recently lowered some of its key lending rates while its governor has pledged to step up credit support and lower funding costs to help those parts of the economy that have struggled with financing.

China’s central bank warned on Monday of increasing downside risks for the economy as growth continues to falter despite various fiscal and monetary stimulus introduced this year.

(Agencies)