China industrial profits quicken in May, seen fading as finance costs rise

PROFITS at China’s industrial companies surged 16.7 per cent in May from a year earlier, accelerating from 14 per cent in April in spite of expectations of a slowdown as borrowing costs rise and the property market cools.

For the first five months of the year, profits reached 2.9 trillion yuan ( US$ 424 billion), up 22.7 per cent from the same period of last year although the growth pace was lower than the 24.4 per cent annual rate for January-April 2017.

“The quickened growth of China’s industrial profits was partly due to a low-base effect at the same time a year earlier, which marked the second slowest growth over the course of last year,” statistics bureau official He Ping said in a statement on Tuesday.

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

Profit growth at private enterprises and foreign enterprises fell to 14 per cent and 18.9 per cent respectively in the year to May, from 14.3 per cent and 19.8 per cent in January-April.

Nomura analysts this growth noted was driven by “increased investment gains” and “net nonoperating incomes”, terms often used to refer to property profits.

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

Profits at China’s state- owned firms enterprises ( SOE) were up 53.3 per cent at 652.04 billion yuan in January-May, compared with a 58.7 per cent 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.

China’s factory gate inflation eased for the third straight month in May on sagging prices for raw materials, signaling a broader cooling in economic activity as profits are squeezed by slackening domestic demand and rising financing costs. — Reuters