China Industrial Profit Growth Slows as Economic Recovery Wanes

Growth in Chinese industrial companies’ profits slowed in March, adding to evidence the nation’s economic recovery is losing steam.

Net income increased 5.3 percent from a year earlier to 464.9 billion yuan ($75 billion), down from a 17.2 percent pace in the first two months, the National Bureau of Statistics said on its website on April 27. Profit in the first quarter rose 12.1 percent to 1.17 trillion yuan, it said.

China’s stocks fell for a third straight month in April amid investor concern that the recovery in the country’s economic expansion is losing momentum and will hurt corporate earnings. The benchmark Shanghai Composite Index closed 1 percent lower on April 26, the last trading day before a three-day holiday ending May 1.

“Profits are only growing in line with sales and with problems of overcapacity and the sluggish global picture, it doesn’t bode well for a speedy return to higher profit margins,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. “Heavy industries especially still face destocking and higher costs, but if there is a silver lining, industries catering to the consumer, like textiles, food and beverages, seem to be doing much better.”

Inner Mongolia Yili Industrial Group Co., a producer of dairy products, reported an 18.6 percent rise in first-quarter net income, according to an April 26 statement to the Shanghai Stock Exchange.

Industrial companies’ revenue rose 11.9 percent in the first three months to 22.2 trillion yuan, according to the statistics bureau statement. That’s down from 13.1 percent in the first two months. The bureau doesn’t break down January and February data due to distortions caused by the timing of the Lunar New Year holiday. No figure was given for March sales.

Lower Estimates

Profit margins in the first quarter were 5.3 percent, the same as the first three months of 2012, the data show. The report covers companies with annual sales of 20 million yuan and above in 41 industry categories.

Gross domestic product in world’s second-biggest economy expanded 7.7 percent in the first three months of 2013 from a year earlier, down from 7.9 percent in the fourth quarter and trailing the 8 percent median estimate in a Bloomberg News survey. Goldman Sachs Group Inc., RBS and JPMorgan Chase & Co. cut their estimates for full-year growth to 7.8 percent after the GDP data were released April 15. That would be the same pace as 2012 which was the weakest in 13 years.

Weaker Prices

Industrial growth is facing downward pressure amid slowing domestic and international demand, Ministry of Industry and Information Technology spokesman Xiao Chunquan said April 23. Profits at industrial companies are at “very low levels” compared with the past few years because of falling product prices and surging costs, Xiao said.

Aluminum Corp. of China Ltd., the nation’s biggest producer of the lightweight metal, on April 26 reported its sixth straight quarterly loss.

Vehicle manufacturing earnings dropped 1 percent last month from a year earlier after a 20 percent increase in the first two months, the statistics bureau said in a separate statement. The drop in coal industry profit accelerated in March to 50 percent from 35 percent in the first two months, it said.

Earnings in some industries have rebounded after falling for most of last year when slowing economic expansion damped demand for steel, cement and machinery. Restocking and higher product prices are supporting profit gains even as growth in GDP moderates. Profit in the ferrous metals industry, which includes steel, doubled in March from a year earlier, the bureau said.

Earnings in oil processing, coking and nuclear fuel processing tripled in March from a year earlier, after swinging to a profit in the first two months from a loss a year ago, the bureau said.

China Petroleum & Chemical Corp., Asia’s biggest refiner, made a profit from crude-oil processing in the first quarter for the first time since 2011, while PetroChina Co., cut its refining losses, statements from the companies last week showed.