Firms face pressure to stay in black

Industrial enterprises witness slowing growth amid profitability headwinds

Profit growth among China’s major industrial firms slowed in September, leading to a weaker 14.7 percent yearon-year profit expansion from January to September, down 1.5 percentage points compared with the first eight months, analysts said.

They added that enterprises will continue to face heavy profit headwinds in the fourth quarter, although the overall economy remains on track.

In September alone, yearon-year profit growth of industrial firms was 4.1 percent, down from 9.2 percent in August, the National Bureau of Statistics said on Saturday.

Major industrial firms, or above-scale enterprises, are those with over 20 million yuan ($2.9 million) in annual sales revenue.

The weak September data was mainly driven by a pullback in product prices as well as a high comparative base from last year, NBS official He Ping said in a statement.

But the efficiency of major industrial firms improved with higher profitability and lower costs, according NBS data.

Although industrial profits rose at a slower pace, industrial companies’ operating costs and leverage ratios both fell, while their profitability continued to improve, He said.

The asset-liability ratio of major industrial firms was 56.7 percent by the end of September, 0.4 percentage point down from a year earlier, the NBS said.

During the January-September period, production costs per 100 yuan of revenue dropped 0.29 yuan from the same period last year to 84.31 yuan. Profits in 34 of the 41 sectors surveyed increased compared with one year earlier, unchanged from that in the January-August period.

According to the NBS, the steel, construction materials, oil and chemicals sectors, which accounted for 72.4 percent of the overall industrial profit increases, posted strong profit growth in the first nine months.

“China’s industrial profit growth remains stable, although it is easing,” said Gao Ming, an analyst at China Merchants Securities. “The easing is worrisome.”

Gao said the profit growth could continue to trend down in the coming months.

“If the Chinese economy continues to weaken, the corporate sector could face heavier pressure in terms of profitmaking performance,” said Huang Wentao, an analyst at China Securities.

Saturday’s data was released after the world’s second-largest economy registered slowed year-on-year GDP growth in the third quarter, which was 6.5 percent, down from 6.8 percent and 6.7 percent in the first and second quarters, respectively.

Although a slew of economic indicators, such as industrial output and investment, weakened in the third quarter, analysts said China’s economy remains resilient.

Despite the easing in the third quarter, China’s GDP growth in the first quarter was 6.7 percent, which was still strong compared with other countries, Chen Xian, an economist at Shanghai Jiao Tong University told Chinese media.

Huang said China is expected to devise new policies, such as those regarding finance, consumption, exports and currency, to cushion the economic slowdown.

To stabilize growth, China should promote the private economy and push forward State-owned enterprise reform to build confidence in the market, said Gao.

Authorities can provide more support for development of private enterprises by cutting taxes, making it easier for them to have access to bank lending and loosen entry into such sectors as elderly care and health, he said.