China’s Industrial Profits Get Boost From Steel, Refining

  • Industrial profits in first nine months of year rose 8.4%
  • Steel and oil refining lead gains among industry groups

Profits of China’s industrial corporations are holding up this year thanks to a boost from steel and refining, even as last month’s earnings slowed from a three-year high.

Industrial profits in January-September rose 8.4 percent from a year earlier to 4.64 trillion yuan ($685 billion), the National Bureau of Statistics said Thursday. Earnings last month rose 7.7 percent in September from a year earlier to 577.1 billion yuan, less than the jump of 19.5 percent in August that was the biggest in three years.

"The figures aren’t bad in fact, especially in the state sector, which is doing very well," said Zhou Hao, an economist at Commerzbank AG in Singapore. "The biggest challenge facing companies is to strike a balance between cutting debt and making a profit. Controlling debt risk now becomes a priority for the government as corporate profits have been stabilized."

Steel production is leading the charge with a 272.4 percent jump in the fist nine months versus a year ago, followed closely by a 263.8 percent jump for oil refining earnings. Years of deflation for factories has abated, with producer prices up last month for the first time since 2012, as global commodity prices recover and stimulus supports domestic demand.

Early Indicators

With the economy stable, policy makers are stepping up efforts to curb risks from rampant growth in shadow banking products, elevated corporate debt and surging home prices. Early private indicators for October give mixed readings, reflecting tension between resilient domestic demand and fresh challenges as policy switches to reining in financial risks.

"Profit and revenue growth may benefit further from improving post-factory price pressures in the coming months," said Donna Kwok, a senior China economist at UBS Group AG in Hong Kong. "Property tightening measures will have only a modest effect, but any dampening effect will take time to trickle through to property construction and investment activities, so support for industrial demand and sales should hold up."

Still, the NBS said in a statement that foreign and domestic demand remain weak, and coal and steel companies have taken on more debt. "We should take heed of corporate debt risks as we cut overcapacity," the NBS said. The agency said the month-over-month moderation was partly because profits in August 2015 were especially weak, then stronger the next month.

The world’s second-largest economy has posted three straight quarters of 6.7 percent growth, keeping the expansion on track to meet the government’s objective.

— With assistance by Miao Han

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE