Industrial earnings show upgrading pays dividends

Profits earned by major industrial firms witnessed steady growth in June, the latest sign of continued recovery in the world's second-largest economy.

Profits made by major industrial companies rose 19.1 percent year-on-year in June, up from the 16.7-percent growth in the previous month, data from the National Bureau of Statistics showed on Thursday.

Structural improvements in the industrial sector paid off, with profits earned by high-tech manufacturing increasing in June, while profits in traditional sectors such as mining declined during the same period.

The positive profit data came after a series of statistics released earlier this month, reflecting the continued expansion of the industrial sector.

Data such as the Producer's Manager Index and industrial value-added output achieved better-than-expected growth in June.

"The low base effect contributed to high speed month-on-month growth in June, but in general, based upon recent data released, the profits of industrial firms have been on the track to see medium-to－high growth," said Gao Ming, an analyst with China Merchants Securities.

Some possible negative factors such as slower investment in June have not dragged down the growth pace, according to Gao.

A slower-than-expected decline in housing sales means the appetite for industrial products has remained healthy, he added.

The improved outlook for economic growth will support the robust growth of profits, after the economy witnessed solid growth in the first six months, according to Gao.

In the meantime, a possible cooling of the property market may put some downward pressure on profit growth, according to Zhao Yang, chief China economist with Nomura Securities.

Increased costs of companies in recent months are another source of pressure on future profit gains, according to He Ping, a statistician at the NBS.

The central government has implemented a series of measures starting from the beginning of this year in order to prevent asset bubbles and reduce debt levels.

Efforts to curb financial risks have led to concerns that companies would face higher costs.

Li Bin, deputy head of the monetary policy department of the People's Bank of China, said firms are unlikely to be affected much by regulatory measures, because total social financing, a broad measure of liquidity in the market, continued to increase at reasonable pace on a monthly basis.

"While fending off financial risks, the government will ensure that the financing demand of companies can be properly met," said Li.