Chinese Corporate Profit Growth Slows as Europe, Property Drag on Economy

Chinese industrial companies’ profits growth cooled, adding to evidence the government may need to ease policy to protect the nation’s economic expansion.

Net income increased 24.4 percent in the first 11 months of 2011 from a year earlier to 4.66 trillion yuan ($737 billion), the National Bureau of Statistics said on its website today. The pace compared with 25.3 percent gain in the first 10 months and a 27 percent rise in the first three quarters.

A lingering Europe debt crisis and a cooling domestic property market are dimming growth prospects for the world’s second-largest economy. More Chinese bankers are forecasting a further loosening in monetary policy as the expansion cools and households’ inflation expectations are easing, surveys by the central bank showed on Dec. 22.

“We are likely to see a decline in profits as the economy slows and prices at factory gate are falling,” Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong, said before the release. “Slowing profits would provide further evidence of decelerating growth, adding pressure on policy easing.”

Industrial companies’ revenue climbed 28.2 percent to 75.9 trillion yuan for the first 11 months of the year, today’s report showed. Revenue expanded 29.1 percent in the first 10 months.

Monthly Growth

For the month of November, industrial companies’ profit grew 17.9 percent, compared with a 12.5 percent pace in October, according to the data.

China’s gross domestic product expanded 9.1 percent in the third quarter, slowing from a 9.5 percent gain in the previous three months.

The central bank cut the amount of cash that lenders must set aside as reserves for the first time since 2008 this month, freeing cash to sustain the economic expansion in the world’s most populous nation.

About 14.4 percent of bankers expect more monetary policy easing in the first quarter of 2012, a central bank survey showed on Dec. 22, compared with only 3.5 percent last quarter.

The industrial profits data cover companies with annual sales from their main business of at least 20 million yuan in 39 industries including oil and gas exploration, transportation equipment manufacturing, telecommunications and power generation.

Slowing economic growth is weighing on corporate profits. Profit margins at 77 large and medium-sized Chinese steelmakers narrowed to a record 0.47 percent in October, according to the Economic Information Daily, which cited the China Iron & Steel Association.

A weaker yuan may spur an outflow of investment from China’s property market, curbing construction demand for steel and further cutting profits at Chinese steelmakers, Mirae Assets Securities Co. said in a note on Dec. 5.

--Zheng Lifei. Editor: Lily Nonomiya, John Liu

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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