China | Industrial profit pullback not a concern, but beware rising debt
Workers at a Shanxi Zhongsheng Iron and Steel factory in Fenyang, Shanxi Province, China. Photo: Reuters/John Ruwitch
Workers at a Shanxi Zhongsheng Iron and Steel factory in Fenyang, Shanxi Province, China. Photo: Reuters/John Ruwitch

Industrial profit pullback not a concern, but beware rising debt

Government tries to dispel fears as sales moderate across several major sectors including electronics, steel and utilities

October 27, 2016 12:25 PM (UTC+8)

China’s overall industrial profits in September rose just 7.7% year on year after surging 19.5% during August, as output and sales moderated across several major sectors including electronics, steel and utilities, the National Bureau of Statistics said on Wednesday.

The pullback in September profits is a “mean-reversion phenomenon” — where prices and returns eventually move back to the mean or average — while the overall trend continues to improve, the government explained in an effort to dispel concerns.

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The latest figure puts year-to-date earnings growth at 8.4%, which is steady compared to the previous month.

Price levels are generally on the rise, as the Producer Price Index turned positive during the month, ending a 54-month deflationary period. This lead the mining industry to report a 30.3% year on year profit jump in September.

Other upstream industries also performed well, such as steelmaking which swung to a profit of 15.13 billion yuan in September from a loss of 1.46 billion yuan a year earlier. The nonferrous sector witnessed a 46.9% surge, while the nonmetallic mineral products sector, i.e. cement and glass, saw profits rising 10%.

The turn of fortune for commodities and raw materials meant much rosier bottom lines for state-owned enterprises as well, with their profits surging to a year high 47.6% in September.

These positive developments are encouraging, but the statistics agency also warned of persistent softness in domestic and overseas markets, and at the same time, the rising debt ratios of coal and steel companies.

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