Industrial profit growth slowing down in China

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Industrial profit growth slowing down in China

Growth in Chinese industrial companies’ profits slowed in June as the economy cooled, costs rose and prices fell on moderating demand and overcapacity.

Net income increased 6.3 percent from a year earlier to 502.4 billion yuan ($82 billion), the Beijing-based National Bureau of Statistics said, down from a 15.5 percent pace in May. Profit from main business operations fell 2.3 percent after an 8.8 percent gain the previous month, it said.

China’s stocks fell for a third day on July 26 on concern the nation’s growth will slow further after the government ordered cuts to production capacity in 19 industries to tackle oversupply that’s hurting prices and profits. At the same time, the State Council this week offered limited support for the world’s second-biggest economy, saying the nation will accelerate railway construction, give tax breaks for small companies and cut fees for exports.

“In terms of policy, one thing is clear - there will be no stimulus package,” Zhu Haibin, chief China economist at JPMorgan Chase & Co., said in Beijing. The government is trying to make fiscal policy more effective by using savings from curbs on administrative spending and extravagance for “stimulus-style fiscal policies such as tax cuts for small companies and expanding VAT reform,” he said.

On monetary policy, the central bank is seeking to “activate the existing credit stock” by squeezing speculative lending and directing funds to support the real economy, he said.

Industrial companies’ profits in the first six months of the year rose 11.1 percent to 2.58 trillion yuan, down from a 12.3 percent gain in the January-May period, and sales rose 11.4 percent to 47.8 trillion yuan, yesterday’s data showed.

Profit from main business operations, a measure the statistics bureau started releasing last month, rose 7.2 percent in the first six months, slowing from an 11.4 percent pace in the January-May period.

The report covers companies with annual sales of 20 million yuan and more in 41 industry categories. Among those, 30 reported higher profits and one showed a loss, the NBS said.

The moderation in profit growth was due to a slowdown in sales gains, higher raw-material costs and a high comparative base in June last year, He Ping, a statistics bureau official, said in an analysis of the data posted on the Web site.

The State Council, headed by Premier Li Keqiang, last week announced a raft of measures to help the economy amid increasing signs growth will ease for a third quarter, putting the government at risk of missing its annual expansion target for the first time since 1998. The previous week, the Ministry of Finance urged local authorities to speed up their budgetary spending and make sure their unused funds at the end of this year are lower than at the end of 2012.

The Ministry of Industry and Information Technology last week ordered more than 1,400 companies in 19 industries including steel, ferro alloys and cement, to cut excess production capacity this year, an indication the government is pursuing pledges to restructure the economy even as growth slows.

Shanghai-listed shares of BBMG Corp., a Beijing-based cement maker, fell 3.3 percent on July 26, and Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. dropped 1.5 percent after being cited in the MIIT list.

“More supportive policies are in the pipeline, and many of them will be integrated as part of structural reforms,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said in a Friday research note. “There is no conflict between stabilizing growth and promoting structural reforms, as elements of expansionary policies can be identified within the structural reforms.”

Bloomberg

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