China's industrial profits growth quickens in March

BEIJING - The profits of China's major industrial firms rose 11.1 percent year on year in March, widening from a 4.8 percent growth in the Jan-Feb period and suggesting stabilization in the economy, official data showed on Wednesday.

The profits of industrial companies with annual revenues of more than 20 million yuan ($3.1 million) totaled 561.24 billion yuan in March, the National Bureau of Statistics (NBS) said.

In the first three months of 2016, the profits of these firms rose 7.4 percent year on year to 1.3 trillion yuan.

He Ping, an official with the NBS Department of Industry, attributed the profits growth to increased sales, a milder decline in factory product prices as well as government efforts to lower enterprises' costs.

The producer price index, a measure of costs for goods at the factory gate, dropped 4.3 percent year on year in March, narrowing from a 4.9-percent drop in February and a 5.3-percent drop in January.

In March, revenues from the major industrial companies' primary business climbed 4.6 percent year on year, the quickest growth in three years, improving from a 1-percent increase in the Jan-Feb period, said the NBS.

"This points to an improvement in growth momentum," according to a research note from Japanese securities trader Nomura.

Private firms outperformed the state sector, with profits up 7.7 percent year on year, compared with a 5.7-percent plunge in profits of state-owned industrial producers.

Aside from the recovery, part of the industrial profits growth was a result of the lower base in the same period of last year, He said.

The official also noted that the profits growth in March was concentrated in a few sectors. The profits of five sectors including computer communication, auto manufacturing and pharmaceutical manufacturing accounted for 88.8 percent of the total industrial profits.

The Chinese economy got off to a good start in the first quarter, with the real economy gaining momentum thanks to previous policy stimulus and ongoing economic rebalancing.

China's exports staged a surprising turnaround in March by surging 18.7 percent in yuan-denominated terms year on year, while a decline in imports narrowed, according to customs data.

Consistent with the improvement in trade data, China saw stronger electricity consumption and railway freight growth in Q1.

Meanwhile, structural headwinds such as housing oversupply, high leverage and overcapacity remain. China's economy rose 6.7 percent in the first quarter, the weakest since the dark days of the financial crisis in early 2009.

HSBC said in a report that it expects domestic demand to remain the key driver of China's economic growth in 2016, and that more proactive policy easing is still warranted, such as a rate cuts of 50 bps, reserve ratio cuts of 350 bps and stronger fiscal stimulus.