Aug. 27 (Bloomberg) -- Chinese industrial companies’ profits fell in July by the most this year, a government report showed today, adding to evidence the nation’s economic slowdown is deepening.
Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the fourth straight decline, National Bureau of Statistics data today showed. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May.
Today’s data add pressure on the government to step up policy easing to reverse a slowdown that may extend into a seventh quarter. On an inspection of Guangdong province from Aug. 24 to 25, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the Xinhua News Agency reported.
“The economy is slowing faster than what had previously been expected,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. The profit outlook is for “further weakness throughout the year,” he said.
Industrial companies’ profits in the first seven months of the year declined 2.7 percent to 2.7 trillion yuan, according to today’s statement. That compares with a 2.2 percent drop in the first half and a 28.3 percent gain in the same period in 2011.
China’s benchmark Shanghai Composite Index of stocks dropped 1 percent at 10:19 a.m., extending a decline after falling last week to the lowest level in more than three years.
State-owned companies’ profits declined 12.2 percent in the first seven months from a year earlier, while foreign-funded companies’ earnings dropped 12.6 percent, today’s report showed. Private industrial companies’ profits increased 15.5 percent.
Among 41 industries, 25 reported year-over-year profit growth in the first seven months and 15 recorded declines, while one group -- oil refining, coking and nuclear-fuel processing -- swung to a loss from a profit, the statistics bureau said.
The government will probably lower banks’ reserve requirements and boost infrastructure investment and consumption incentives, among other steps, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
“Today’s profit data and Wen’s weekend comments should be supportive for market sentiment as they suggest that the situation is bad enough for policy makers to take more action to support the economy,” Kowalczyk said.
Gross domestic product expanded 7.6 percent last quarter, the slowest pace in three years, as Europe’s debt crisis hurt exports and Wen’s campaign to cool consumer and property prices damped domestic demand. Bank of America Corp. estimates a further slide to 7.4 percent in the three months through September.
Bank of America and Deutsche Bank AG this month reduced their forecasts for full-year economic expansion to 7.7 percent, which would be the slowest pace since 1999. Wen in March set a target of 7.5 percent.
Company profits are declining amid falling prices, higher costs and slower demand.
Xinjiang Goldwind Science & Technology Co., China’s second-biggest maker of wind turbines, said last week that first-half profit slumped 83 percent as competition intensified and market growth slowed.
A preliminary reading of a manufacturing purchasing managers’ index released by HSBC Holdings Plc and Markit Economics on Aug. 23 showed the lowest reading since November. Export growth almost stalled in July and new yuan loans and industrial production both trailed estimates.
China cut interest rates in June for the first time in three years, and again in July. The central bank has also lowered the reserve-requirement ratio for lenders three times starting in November to support growth. The ruling Communist Party last month pledged to keep adjusting policies to ensure stable economic expansion this year.
Industrial companies’ revenue in the first seven months increased 10.6 percent to 50 trillion yuan, today’s report showed.
“A big problem at present is the weak investment from the corporate sector, and China has to do more to encourage corporate investment,” Li Daokui, a former central bank adviser, said in an interview last week.
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