Severe drop in Chinese profits

Biggest decline since 2011

CHINESE industrial companies reported profits fell the most in at least four years as the pillars of China’s infrastructure-led growth model suffered from a devalued yuan, a tumbling stock market and weak demand.

Industrial profits tumbled 8.8 percent in August from a year earlier, with the biggest drops concentrated in producers of coal, oil and metals, the National Bureau of Statistics said yesterday in Beijing.

It was the biggest decline since the government began releasing monthly data in October 2011.

China’s stock market plunge and currency devaluation are adding new challenges for the world’s second-largest economy as it struggles with excess capacity, sluggish investment and weaker manufacturing.

The nation’s official factory gauge slumped to a three-year low last month, while Bloomberg’s monthly gross domestic product tracker remained below the government’s 7 percent goal in August with a reading of 6.64 percent.

“Companies are facing enormous operational pressures,” said Liu Xuezhi, a macroeconomic analyst at Bank of Communications in Shanghai. Profits in coal mining had plunged 64.9 percent in the first eight months of this year from the same period last year, while oil and gas profits had tumbled 67.3 percent, the report said. Ferrous metal smelting earnings fell 51.6 percent.

The drop in profit was attributed to falling product prices, lower investment returns and foreign exchange losses, He Ping, an NBS official, said in an analysis on the agency’s website. The report is a gauge of earnings from industrial companies that have 20 million yuan (R43.5m) or more in annual “core business income”, according to NBS.

Producer prices, or the price of goods as they leave the factory, slumped to a six-year low in August.

“Severe factory-gate deflation and high interest rates are dual poison for profits,” said Uwe Parpart, the chief strategist at Reorient Securities in