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Chinese Industrial Companies’ Profits Drop for Second Month

June 28, 2012

Chinese Industrial Companies’ Profits Drop for Second Month

Industrial profits for the first five months declined 2.4 percent from a year earlier to 1.84 trillion yuan, the statistics bureau said. That compared with a 1.6 percent drop in the first four months and a 27.9 percent gain in 2011. Photographer: Nelson Ching/Bloomberg

Chinese industrial companies’ profits fell for a second month in May, a government report showed today, as slowing economic growth hurt corporate earnings.

Income dropped 5.3 percent from a year earlier to 390.9 billion yuan ($61 billion), the National Bureau of Statistics said on its website today. That compares with a 2.2 percent decline in April and 4.5 percent gain in March.

The deterioration adds to signs that government measures to stimulate the world’s second-biggest economy have yet to reverse a slowdown that may deepen for a sixth quarter. China may introduce “more proactive” policies to support growth by stabilizing foreign trade and expanding infrastructure investment, the China Securities Journal reported June 27.

“Industrial profits will continue to be under pressure as the slowdown in the economy is curbing demand and deflation is further squeezing profits,” Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB in Hong Kong, said before the release. “But profits may well recover in the second half as the economy is revived by monetary and fiscal stimulus and commodity prices weaken.”

Industrial profits for the first five months declined 2.4 percent from a year earlier to 1.84 trillion yuan, the statistics bureau said. That compared with a 1.6 percent drop in the first four months and a 27.9 percent gain in 2011.

Growth Slides

China’s economy expanded 8.1 percent in the first quarter of 2012 from a year earlier, the least in almost three years and the fifth quarterly deceleration.

Bank of America Corp. estimates growth will slide to around 7.5 percent this quarter while Credit Agricole CIB projects a drop to as low as 7 percent.

The People’s Bank of China on June 7 announced the first cut in benchmark interest rates since 2008 and has lowered banks’ reserve-requirement ratios twice this year to spur lending. New loans in May were a record for that month and longer-term lending picked up, signaling support for investment projects that may arrest the economic slowdown.

Industrial companies’ revenue in the first five months increased 11.9 percent to 34.5 trillion yuan, according to today’s statistics bureau report. Sales rose 29.4 percent in the same period last year.

The data cover companies in 41 industries. Starting last year, the statistics bureau raised the minimum annual sales for businesses included in the survey to 20 million yuan from 5 million yuan.

Profits in some industries are being dragged down by the government’s curbs on real-estate development.

China Resources Cement Holdings Ltd. (1313), the fourth-largest Hong Kong-listed cement maker by market value, said this week its first-half net income “significantly decreased” compared with last year as selling prices fell due to slower growth in China’s fixed-asset investment. West China Cement Ltd. and Anhui Conch Cement Co. have also issued profit warnings this month.

China’s cement output rose 5 percent in the first five months of the year, a slowdown of 14.3 percentage points from the same period in 2011, the Xinhua News Agency reported last week, citing data from the National Development and Reform Commission.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

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


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