Business | Smokestack economy spews back to life with profit rebound
Vroom boom: car sales get China out of the ditch. Photo: Reuters
Vroom boom: car sales get China out of the ditch. Photo: Reuters

Smokestack economy spews back to life with profit rebound

China's industrial sector returns to earnings growth as economy escapes from half-decade of falling prices

January 26, 2017 6:09 PM (UTC+8)

China’s industrial sector rebounded in 2016, with profits expanding 8.5% after a contraction of 2.3% a year earlier, as the economy exited almost five years of deflation, the National Bureau of Statistics said.

Earnings hit 6.88 trillion yuan (US$1 trillion), from 6.36 trillion yuan in 2015. Sales for the year rose 4.9% to US$17 trillion, with margins widening by 19 basis points to 5.97%.

The recovery first made its presence felt in upstream energy-related industries, as a sharp rebound in global prices of oil and other commodities since February conspired to push up top and bottom lines across the board.

Still, it was the automakers that put their pedals to the metal, as government incentives and the wealth effect from surging property prices fueled a 14.1% jump in vehicle sales to 8.02 trillion yuan. Earnings rose 10.8% to 667.7 billion yuan, cementing the sector’s place as the nation biggest profit center.

The recovery of China’s smokestack industries comes against a backdrop of Beijing’s aggressive campaign to tackle the issue of excess capacity. Decades of over-investment have burdened China with inefficient mines, blast furnaces and plants that flood the market with surplus goods and rob companies of their pricing power.

In a warning of possible pitfalls on the path to recovery, industrial profits ended the year with a whimper. December’s growth of 2.3% marked a sharp drop from November’s blockbuster 14.5% rise. IT equipment contracted 10.5%, chemicals was minus-13.9%, and specialty equipment shrank 6.3%.

The government statistics office put the dramatic slide down to a mix of asset writedowns, investment fluctuations, and the restructuring of product offerings made by a limited numbers of large enterprises. If so, the year-end blues may well prove a blip.

Nonetheless, a repeat of last year’s stellar performance is no shoo-in, as the industrial segment “pie” has only gotten bigger. China is once again pledging to keep cutting excess capacity and move up the technology ladder in an effort to steer clear of dangers for the industrial economy.

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