Chinese Industrial-Company Profits Jump 82%, Underscoring Overheating Risk

Chinese industrial companies’ profits jumped 82 percent in the first five months of 2010, underscoring the strength of an economic comeback that is prompting officials to wind back stimulus measures.

Net income rose to 1.54 trillion yuan ($227 billion) from a year earlier, the statistics bureau said on its website today. Profits climbed 120 percent in the first two months.

Stronger earnings give companies funds to sustain capital investments even as China’s policy makers seek to slow credit growth and avoid economic overheating. Analysts are split on whether officials have done enough to achieve that goal, with eight of 14 in a Bloomberg News survey this week forecasting an interest-rate increase in coming months.

“We see one interest-rate hike by the end of this year,” Alaistair Chan, a Sydney-based economist at Moody’s Economy.com, said today. The key one-year lending rate is 5.31 percent and the deposit rate is 2.25 percent.

Taiwan unexpectedly raised interest rates yesterday, citing the domestic and global recoveries and export gains.

In China, the central bank has ordered lenders to set aside more money as reserves three times this year and on June 19 indicated that a crisis policy of pegging the yuan to the dollar is over. Gains by the Chinese currency, set for its biggest weekly advance against the dollar since December 2008, may help to counter inflation by making imports relatively cheaper.

Companies’ Sales Climb

The Shanghai Composite Index fluctuated between gains and losses after the numbers were released, falling 0.4 percent as of 11:14 a.m. local time.

Sales increased 38 percent to 25.4 trillion yuan, today’s statement showed. The figures, released every three months, cover state and private businesses with annual sales of more than 5 million yuan in 39 industries, including steel, chemicals, electricity, telecommunications and mining.

Price gains, the jump in sales, and a low base a year earlier contributed to the profit increase, the statistics bureau said. In contrast, net income declined 23 percent in the first five months of 2009 as the financial crisis hit.

Nonferrous-metal mining profits soared 330 percent in January-May of 2010 from a year earlier, today’s data showed. For coal mining, the increase was 81 percent.

China’s Growth

The Chinese economy expanded 11.9 percent in the first quarter from a year earlier, the fastest pace in almost three years. Growth may moderate over 2010 as the effects of stimulus measures fade, the government acts to cool the property market, and year-earlier bases for comparison climb. Austerity measures imposed by governments in Europe could also curb export demand.

Xu Lejiang, the chairman of Baosteel Group Corp., the nation’s second-biggest steelmaker, said June 8 that demand for the metal from auto and appliance makers had weakened. Many steelmakers are likely to cut production or carry out maintenance in the third quarter, Xu added.

The nation’s growth “definitely peaked in the first quarter, and China’s economy will gradually slow and achieve a soft landing,” Chan said.

In today’s statement, the statistics bureau also contrasted profits with the same period in 2008, before the financial crisis intensified. On that basis, the gain was 18.6 percent, “significantly lower than the historic average for the decade,” the bureau said.

--Sophie Leung. Editors: Paul Panckhurst, Chris Anstey.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

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