China | China state-owned firms' profit growth edges higher
Chinese workers assemble cars on the assembly line at an auto plant in Zunyi city, southwest China's Guizhou province. Photo: AFP
Chinese workers assemble cars on the assembly line at an auto plant in Zunyi city, southwest China's Guizhou province. Photo: AFP

China state-owned firms’ profit growth edges higher

Both factory prices and industrial profits showed robust growth in November

December 28, 2016 11:58 AM (UTC+8)

Profits at China’s state-owned firms rose 2.8% in the first eleven months of 2016 from a year earlier, aided by a raw material price rally and a construction boom, the Ministry of Finance said on Wednesday.

In October the year-to-date earnings by state-owned enterprises (SOEs) turned positive for the first time this year, with earnings for the 10 months showing 0.4 growth from a year earlier.

Total profits at state firms stood at 2.1 trillion yuan (US$3 billion) in the first 11 months of the year, while revenue rose 2.4% to 40.8 trillion yuan, the ministry said.

SOEs in the coal, steel and building materials sectors enjoyed relatively large profit growth, while firms in the textile, petroleum, and tobacco industries suffered significant falls in profit, the Ministry said.

Both factory prices and industrial profits showed robust growth in November, as prices of coal, steel and building materials soared, giving firms more cash to pay off mountains of debt.

China’s debt to GDP ratio was 250% at the end of 2015, according to the IMF, and with 11.6 trillion yuan in loans issued this year, the rate looks set to rise again in 2016.

State firms’ total liabilities rose 10.9% year-on-year to 87.6 trillion yuan at the end of November, while total assets posted the same growth to 132 trillion yuan.

China’s growth has stabilized this year, with 6.7% expansion in gross domestic product in the first three quarters, but potentially slower economic growth has sparked fears that firms’ debt servicing capabilities may be hampered.

Analysts also say recent signals from China’s top leaders that more will be done in 2017 to crack down on asset bubbles is putting pressures on raw material prices, casting doubts over the sustainability of such a price rebound.

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