China Industrial Profits Fall Most Since 2011 Amid Slowdown

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China's Economy
An employee stands as a container of molten aluminum sits on a truck at the China Hongqiao Group Ltd. aluminum smelting facility in Zouping, China. The country’s old growth drivers are faltering, weighed by overcapacity and a property downturn. Photographer: Brent Lewin/Bloomberg

Chinese industrial companies’ profits declined the most in at least three years last month, underscoring the challenge facing the nation’s former growth drivers as the economy slows and commodity prices slump.

Industrial profits fell 8 percent in December from a year earlier, the National Bureau of Statistics said in Beijing on Tuesday, the biggest drop since at least October 2011, according to data compiled by Bloomberg. China will strive for 8 percent growth in industrial output this year, an official said at a briefing according to a transcript on a government website.

China’s old growth drivers are faltering, weighed by overcapacity and a property downturn. Services companies are faring better, bolstering an economy that expanded at the slowest pace in 24 years in 2014.

“The upstream industries, from mining to oil exploration, are hurting badly from falling input prices, while some manufacturers are benefiting,” said Ding Shuang, a senior China economist with Citigroup Inc. in Hong Kong. “A deeper fall in industrial profits will damp investment activity to weigh on future growth.”

Profits in coal mining plunged 46.2 percent in 2014, while the oil processing and nuclear fuel industry’s returns shrank 79.2 percent, the NBS said. Profits in automaking rose 18.1 percent and in electronics manufacturing they increased 17.1 percent.

Shifting Growth

The fall in raw material supply profitability and the rise in consumer product manufacturing profitability showed China’s “growth is shifting from an investment-driven model to a consumption-led one,” the NBS said in a statement.

A manufacturing gauge recovered lost ground in January, suggesting stimulus measures have helped stabilize the world’s second-largest economy. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.8, exceeding the median estimate of 49.5 in a Bloomberg survey and up from December’s 49.6, a Jan. 23 report showed. Numbers below 50 indicate contraction.

— With assistance by Xin Zhou

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