Profits of major industrial companies slump in August

Profits at China's major industrial companies slumped significantly in August, pointing to weakening market demand and shoring up the case for new incremental policies to prop up growth, officials and analysts said on Friday.

Their comments came as data from the National Bureau of Statistics show that industrial enterprises with annual revenue of at least 20 million yuan ($2.85 million) saw their total profits slump 17.8 percent from the same month last year, compared to a 4.1 percent year-on-year rise in July.

For the January-August period, China's industrial profits increased 0.5 percent year-on-year, following a 3.6 percent growth in the first seven months.

NBS statistician Yu Weining said the decline in August profits was mainly due to the high comparison base in the previous year, while industrial profits grew at a slower pace in the first eight months due to the lack of effective market demand and the impact of natural disasters such as increased temperatures and floods.

Yu warned of pressures from lukewarm consumer demand and a complicated external environment, saying more efforts should be made to consolidate the foundation for the recovery of industrial profits.

"Moving forward, the country needs to take more steps to foster new growth drivers, actively expand effective demand and further drive equipment upgrades and trade-in deals for consumer goods," Yu said.

Zhou Maohua, a researcher at China Everbright Bank, said the latest figures reflect widespread corporate pain stemming from lackluster market demand, falling industrial product prices, rising production costs and price fluctuations of raw materials.

"Some industrial companies still face high operational pressures," Zhou said, though he expects to see the operating conditions of industrial enterprises gradually improve in the following months.

"That is mainly due to intensified policy support aimed at stabilizing growth, combined with existing policies taking effect gradually, and a gradual stabilization in the real estate sector," he said. "This will help to boost consumer sentiment and expand investment, thus further driving improvements in industrial product prices and enterprise profitability."

A meeting held by the Political Bureau of the Communist Party of China Central Committee on Thursday called for stabilizing the real estate market and strengthening fiscal and monetary policy support.

The country should effectively implement existing policies, step up efforts to roll out incremental policies and strive to accomplish the targets and tasks for this year's economic and social development, according to the meeting.

Luo Zhiheng, chief economist at Yuekai Securities, said the meeting is sending a clear signal that policy measures will be intensified and accelerated to meet market expectations, with more incremental policies expected to roll out.

"Considering China's low price levels and the overseas policy shift, there's plenty of room for policymakers to step up macroeconomic policy support," Zhou from China Everbright Bank said.

With the upcoming shopping spree in the fourth quarter and policies aimed at spurring consumption and investment taking effect gradually, Zhou said that consumption and domestic demand will likely improve in the remainder of the year.