China’s in­dus­trial proits soar

Gov­ern­ment-backed con­struc­tion boom helps Bei­jing trim high lev­els of cor­po­rate debt with­out trip­ping up the econ­omy

The Gulf Today - Business - - 6viewpoint -

BEI­JING: Prof­its at China’s in­dus­trial com­pa­nies rose the most in four years in Au­gust as com­modi­ties prices surged, thanks to a gov­ern­ment-backed con­struc­tion boom that is help­ing Bei­jing trim high lev­els of cor­po­rate debt with­out trip­ping up the econ­omy.

The up­beat earn­ings re­port is another sweet­ener for au­thor­i­ties as China fo­cuses on strip­ping out fi­nan­cial risks from years of credit-fu­eled growth and keep­ing the econ­omy on a steady foot­ing ahead of a cru­cial party gath­er­ing next month.

Prof­its in Au­gust jumped 24 per cent year-on-year to 672 bil­lion yuan ($101.21 bil­lion), the Na­tional Bu­reau of Statis­tics (NBS) said.

Dis­count­ing the com­bined Jan­feb profit rise of 31.5 per cent, the lat­est earn­ings boost would be the big­gest sin­gle monthly per cen­t­age surge since Au­gust 2013. The statis­tics bu­reau does not re­lease sin­gle-month fig­ures for Jan-feb due to sea­sonal fac­tors. An­nual profit growth was 16.5 per cent in July.

“The fig­ures are re­ally pos­i­tive - they show China’s ef­forts to cut down on over­ca­pac­ity is work­ing well,” said Iris Pang, Greater China Econ­o­mist at ING bank in Hong Kong.

Cru­cially, Pang said that Bei­jing is also mak­ing head­way in re­duc­ing debt risks. “When you close down over­ca­pac­ity fac­to­ries, you are also delever­ag­ing to an ex­tent.”

The ro­bust in­dus­trial earn­ings growth in Au­gust was driven by higher prices, par­tic­u­larly in sec­tors such as oil, steel and elec­tron­ics, He Ping of the Na­tional Bu­reau of Statis­tics said in a state­ment.

He es­ti­mated that surg­ing prices con­trib­uted nearly one third of the new prof­its last month.

A year-long, gov­ern­ment-led con­struc­tion boom has fu­eled de­mand and prices for build­ing ma­te­ri­als, while China’s push to cut ex­cess ca­pac­ity in heavy in­dus­tries and its war on pol­lu­tion has also ap­peared to in­ten­sify a short-term sup­ply short­age and higher prices. LOOM­ING RISKS

For the first eight months this year, the firms notched up prof­its of 4.92 tril­lion yuan, an in­crease of 21.6 per cent year-on-year, pick­ing up slightly from the 21.2 per cent an­nual growth in the Jan­uaryjuly pe­riod.

The earn­ings data by sec­tor, how­ever, high­lights the un­even na­ture of profit growth.

Earn­ings in the min­ing in­dus­try soared 5.9 times from a year ear­lier, coal min­ing en­joyed a 960 per cent jump and man­u­fac­tur­ing saw an 18.6 per cent boost. Sec­tors such as elec­tric­ity, gas and wa­ter pro­duc­tion how­ever saw their prof­its plunge 22.6 per cent.

A pri­vate sur­vey of thou­sands of Chi­nese firms by China Beige Book In­ter­na­tional (CBB) noted ma­jor risks are loom­ing for 2018, with a re­ver­sal in the com­mod­ity boom be­ing one of the top wor­ries.

“It was de­mand and hot money in­flows that kept prices ris­ing. Nei­ther was sus­tain­able and now de­mand has clearly sput­tered,” it said.

Prof­its at China’s state-owned in­dus­trial firms, often debt-laden, were up 46.3 per cent at 1.08 tril­lion yuan in Jan­uary-au­gust, com­pared with a 44.2 per cent rise in the first seven months. But earn­ings for all SOES for Au­gust alone were only up 4.3 per cent on-year, Reuters cal­cu­la­tions show.

A raft of Au­gust data back an­a­lysts’ ex­pec­ta­tions for the econ­omy to slow over com­ing months, as ef­forts by pol­i­cy­mak­ers to clamp down on debt risks and defuse a prop­erty mar­ket bub­ble have raised fi­nanc­ing costs and gen­er­ally tight­ened mone­tary con­di­tions.

S&P Global Rat­ings down­graded China’s long-term sov­er­eign credit rat­ing last Thurs­day, cit­ing in­creas­ing risks from its rapid build-up debt. Chi­nese in­dus­trial firms’ li­a­bil­i­ties at the end of Au­gust were 6.4 per cent higher than at the same point last year.

Still, af­ter a ro­bust first-half growth is ex­pected to eas­ily meet the gov­ern­ment’s 6.5 per cent tar­get for this year in a wel­come sign for Bei­jing ahead of a Com­mu­nist Party Congress (CPC), which will see a key lead­er­ship reshuf­fle and the set­ting of pol­icy pri­or­i­ties for the next five years.

“We are bullish on China’s growth,” ING’S Pang said.

“It’s not just ca­pac­ity cuts that are boost­ing prices. De­mand is quite strong too.”

Em­ploy­ees at an air­con­di­tioner man­u­fac­tur­ing unit in An­hui prov­ince, China.

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