Bloomberg News

Slower Growth in China’s Industrial Profits May Encourage Easing

December 01, 2011

Nov. 28 (Bloomberg) -- Chinese industrial companies’ profit growth cooled, adding to signs of a slowdown in the world’s second-biggest economy that may encourage Premier Wen Jiabao to ease policies.

Net income climbed 25.3 percent in the first 10 months of 2011 from a year earlier to 4.12 trillion yuan ($646 billion), the statistics bureau said on its website yesterday. That was less than the 27 percent gain for January-through-September. October profits rose only 12.5 percent, the bureau said.

Most economists expect the government to loosen some fiscal or monetary policies without cutting interest rates as inflation remains elevated, a Bloomberg News survey showed this month. Europe’s sovereign-debt crisis is sapping export demand just as a crackdown on speculation damps home sales and construction.

“The slowdown of the economy will become more prominent in the next two quarters,” said Wang Tao, a Hong Kong-based economist for UBS AG who has also worked for the International Monetary Fund. She said she expects “more obvious policy loosening in the first quarter of next year.”

Industrial companies’ sales climbed 29.1 percent to 68.18 trillion yuan for the first 10 months of the year, yesterday’s report showed. Profit declines were reported in industries such as oil processing and power production. Huaneng Power International Inc. previously reported a 79 percent slide in third-quarter net income.

Power Companies

“If economic growth slows further, companies’ profit outlook won’t be very optimistic,” Li Wei, an economist at Standard Chartered Plc in Shanghai, said before yesterday’s release. “Price distortions caused by the government’s administrative controls have affected the operations of power makers and energy producers.”

The Shanghai Composite Index of stocks has tumbled 15 percent this year on concern that growth will falter. Manufacturing may contract this month by the most since March 2009, according to a preliminary purchasing managers’ index.

China’s central bank last week fueled speculation that monetary policy may be eased by letting reserve requirements fall by half a percentage point for more than 20 rural credit cooperatives.

China’s economic growth may slow to 9.2 percent this year and moderate further in 2012, as companies are squeezed by funding difficulties, labor costs, and raw-material prices, Huang Libin, an official from the Ministry of Industry and Information Technology, said Nov. 24. In 2010, the expansion was 10.4 percent.

Price Reforms

Li at Standard Chartered said easing inflation may offer “a good opportunity” for the government to correct price distortions in the energy industries. “Calls for reforms are getting stronger,” he said.

The industrial profits data cover companies with annual sales from their main business of at least 20 million yuan in 39 industries including oil and gas exploration, transportation equipment manufacturing, telecommunications and power generation.

Wen said this month that property curbs won’t be relaxed after increases in down-payment and mortgage requirements this year, along with home purchase restrictions in some cities. The central bank increased interest rates three times and reserve ratios six times.

Most Chinese builders face payment delays from developers as the pace of construction slows amid tighter credit and a slowdown in home sales, Credit Suisse Group AG said in a report. About 80 percent of construction companies said developers were behind on payments, the brokerage said, citing a survey.

--With assistance from Feifei Shen in Beijing. Editors: Paul Panckhurst, Colin Keatinge

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net


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