Industrial sector's profit picture brightens

Net income of companies up 11.6% in July

Industrial companies' net income jumped 11.6 percent year-on-year in July, almost double the pace of 6.3 percent in June, adding further evidence of economic stabilization in China, the National Bureau of Statistics said on Tuesday.

Industrial companies with annual sales from their core business exceeding 20 million yuan ($3.2 million) achieved total profit of 3 trillion yuan from January to July, up 11.1 percent. The rate was unchanged from the first six months, the NBS said.

A worker polishes stainless steel wire rods at a specialty steel plant in Dalian, Liaoning province. The National Bureau of Statistics said on Tuesday that industrial enterprises with annual sales exceeding 20 million yuan ($3.2 million) achieved total profit of 3 trillion yuan from January to July, up 11.1 percent year-on-year. LIU DEBIN / FOR CHINA DAILY

But sales growth slowed in the first seven months to 11 percent, from 11.4 percent in the first half.

“The pickup in industrial profit growth in July is another piece of good news," said Zhu Haibin, chief economist in China with JPMorgan Chase & Co.

He cited other indicators for July, such as industrial output and exports, both of which improved from the first half as domestic demand firmed and fine-tuning by the government began to take effect.

Vice-Minister of Finance Zhu Guangyao said on Tuesday that China will maintain a stable macroeconomic policy, and he said there's no need to launch any further stimulus, even though the domestic and external environment remains tough overall.

The nation's ongoing economic structural adjustment is able to support growth, Zhu said.

In July, industrial companies' profit increase was concentrated in four sectors: electricity and heating power production, communications equipment manufacturing, petroleum and nuclear fuel processing and vehicle production, according to He Ping, a senior NBS economist.

The four sectors combined contributed 10.5 percentage points to the profit growth rate from principal business.

“Enterprises' overall corporate profitability is still at a low level," said He. “The recovery in profits was concentrated in a few sectors, and production costs, especially for labor and raw materials, continue to increase."

According to the NBS, profits from industrial companies' core business climbed 5.1 percent in the first seven months, slowing from the first-half pace of 7.2 percent and 11.4 percent for the first five months.

State-owned industrial companies' profits grew 5.5 percent, while the net income of domestic private-sector companies increased 15.4 percent in July from a year earlier.

The benchmark Shanghai Composite Index rose 0.3 percent to a two-week high of 2,103.57 points on Tuesday after the NBS report.

A Reuters News consensus forecast based on 12 financial institutions' reports said that the official August manufacturing Purchasing Managers' Index, a gauge of factory activity, is expected to rise to a three-month high of 50.6 from 50.3 in July and 50.1 in June. The figure is due for release on Sept 1.

HSBC Holdings Plc earlier reported a preliminary reading for its August PMI of 50.1, a four-month high.

Sheng Laiyun, the NBS spokesman, said on Monday at a news conference that the stabilizing economy means the country can achieve its full-year target of 7.5 percent, as business confidence is improving.

Wang Tao, chief economist in China at UBS AG, said that market sentiment on China has improved, as the rebound in economic activity has exceeded expectations and the government has announced policy measures to stabilize growth.

“We think the pickup in growth reflected to some extent the delayed impact of strong credit growth earlier in the year, which helped to support infrastructure investment and property recovery, as well as restocking in some material sectors," Wang said.