Business

Slowdown in China's July industrial profits

BEIJING Earnings growth for China's industrial firms cooled last month after accelerating for three straight months, reinforcing expectations that the economy will slow over coming quarters as higher lending costs and property market curbs bite.

Profits earned by China's industrial companies last month rose 16.5 per cent from a year earlier to 612.7 billion yuan (S$125 billion), slower than the previous month, the Statistics Bureau said yesterday.

That was the slowest rate of growth since profits rose 14 per cent in April.

Profit growth slowed last month because some companies halted production due to especially high temperatures, said Statistics Bureau official He Ping in a statement.

For the first seven months of the year, the firms notched up profits of 4.25 trillion yuan, a 21.2 per cent jump from the same period last year and a touch slower than the 22 per cent annual growth in the January to June period.

Earnings for the industrial sector were boosted by a year-long, government-led construction spree, which fuelled demand and prices for building materials.

Government efforts to shut older, heavily polluting mines and factories have given commodity prices fresh impetus in recent weeks.

SMOKESTACK

Strong earnings have opened the way for fresh investment, and given the country's long ailing "smokestack" industries, more cash flow which could, in theory, be used to start paying down a mountain of debt.

Aluminum Corp of China reported on Aug 17 that its six-month net profit rose more than tenfold year-on-year as it cashed in on sky-high aluminium prices.

The manufacturing sector, which accounts for 88 per cent of industrial profits, saw profit growth of 18.1 per cent in the first seven months, trending down only slightly from 18.5 per cent in the first half.

But analysts say economic growth is starting to slow as measures to cool heated property prices and clamp down on riskier forms of lending put the brakes on activity.

Beijing's efforts to reduce debt have pushed up lending rates, signalling tighter margins and tougher operating conditions for firms as debt servicing costs go up - a sign of slowing earnings growth over coming months.

In addition to slower profit growth, yesterday's data showed profit margins and account receivables days outstanding weakened slightly in July after improving for the last two months.

Industrial firms' net profit margin fell to 6.09 per cent last month from 6.11 per cent in June.
 - REUTERS

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