Chinese Industrial Profits Fall 6.2% in Fifth Straight Drop

Chinese industrial companies’ profits dropped for a fifth month in August, adding to signs the nation’s economic slowdown is extending into a seventh quarter.

Net income fell 6.2 percent from a year earlier to 381.2 billion yuan ($60.4 billion), the National Bureau of Statistics said today in Beijing. That’s the fastest drop this year and compares with a 5.4 percent decline in July and a 1.7 percent slide in June.

Today’s report may increase pressure on Premier Wen Jiabao to step up easing measures as risks grow that annual expansion in the world’s second-biggest economy will be the weakest in 22 years. China’s central bank injected record funds into the financial system this week while Baoshan Iron & Steel Co., the nation’s largest publicly traded steelmaker, suspended production at a Chinese plant after demand dropped for slabs used to make ships and bridges.

“China’s industrial profitability is unlikely to see any improvement until early 2013 or even mid-2013,” said Joy Yang, Hong Kong-based chief Greater China economist at Mirae Asset Securities (HK) Ltd. “The central bank has to keep liquidity accommodative to growth” and it can do so by injecting funds through reverse-repurchase operations or cutting banks’ required reserves, said Yang, who forecasts one more reserve-ratio reduction this year.

The benchmark Shanghai Composite Index of stocks rose 0.5 percent as of 10:22 a.m., rebounding after closing yesterday at the lowest since January 2009 and briefly falling below the 2,000 level for the first time in three years.

Slowdown Persisting

The economic slowdown may persist into next year on a lack of funding for investment projects, Song Guoqing, a central bank adviser, said last week.

Earnings are declining amid falling prices, higher costs and slower demand. More small companies are halting all or half of their production due to narrowing profit margins, Miao Wei, minister of industry and information technology, said in remarks posted on the agency’s website on Sept. 24. The China Beige Book, a private survey, said more companies are cutting jobs and wages this quarter.

Industrial companies’ profits in the first eight months of the year declined 3.1 percent to 3.06 trillion yuan, according to today’s statement. That compares with a 2.7 percent drop in the first seven months and a 28.2 percent gain in the same period in 2011. The government began reporting monthly year-over-year profit changes in October 2011.

Revenue Pace

Revenue for the companies in the first eight months increased 10.2 percent from a year earlier to 57.6 trillion yuan, today’s statistics bureau report showed. Sales rose 29.9 percent in the January-August period of 2011.

China’s economy may expand 7.4 percent in the three months through September from a year earlier after growth slid for six quarters to a three-year low of 7.6 percent in the second period, according to a median estimate of 23 economists surveyed by Bloomberg News from Sept. 11 to Sept. 18.

Downward pressure on China’s economy is still “relatively large” and the external environment is “very grim,” People’s Bank of China Governor Zhou Xiaochuan wrote in an article in Financial News published on Sept. 19.

Even so, the central bank has paused from monetary easing after cutting interest rates in June for the first time in three years, and again in July. The bank lowered lenders’ reserve requirements three times from November to May.

Manufacturing Shrinks

A preliminary reading of a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics on Sept. 20 pointed to a 11th month of contraction in manufacturing.

The government has sped up approvals of infrastructure projects to help boost investment, while new local-currency lending in August exceeded estimates and was the highest on record in that month. A leading index for China’s economy registered the biggest increase in seven months in August, raising expectations for a moderate rebound in growth, the Conference Board, a New York-based research group said Sept. 25.

Today’s data cover companies in 41 industries, according to the statistics bureau. Starting last year, the bureau raised the minimum annual sales for businesses included in the survey to 20 million yuan from 5 million yuan.

Wuhan Iron & Steel Co., the nation’s fourth-largest listed steel mill, said Aug. 26 that it expects its net income to fall by more than 50 percent in the first nine months from a year earlier as prices decreased.

(Updates with economist’s comment in fourth paragraph.)
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