China factory profits rise at slowest pace in three months

BEIJING: Earnings growth for China’s industrial firms cooled in July after accelerating for three straight months, reinforcing expectations the economy will slow over coming quarters as higher lending costs and property market curbs bite.

Profits earned by China’s industrial companies in July rose 16.5 per cent from a year earlier to 612.7 billion yuan (£71.55 billion), slower than the previous month, the statistics bureau said on Sunday. That was the slowest rate of growth since profits rose 14.0 per cent in April.

Profit growth slowed in July because some companies halted production due to especially high temperatures, He Ping of the National Bureau of Statistics bureau said in a statement along with the data release.

For the first seven months of the year, the firms notched up profits of 4.25 trillion yuan, a 21.2 per cent jump from the same period last year and a touch slower than the 22.0 per cent annual growth in the January-June period.

Earnings for the industrial sector were boosted by a year-long, government-led construction spree, which fuelled demand and prices for building materials.

Government efforts to shut older, heavily polluting mines and factories have given commodity prices fresh impetus in recent weeks.

Strong earnings, in turn, have opened the way for fresh investment, and given the country’s long ailing “smokestack” industries more cash flow which could, in theory, be used to start paying down a mountain of debt.

Aluminium Corp of China Ltd (Chalco) reported that its six-month net profit rose more than ten-fold year-on-year as it cashed in sky-high aluminium prices. A day later, the state-run aluminium smelter said it will be making further investment in raising output in the second half of the year.

The manufacturing sector, which accounts for 88 per cent of industrial profits, saw profit growth of 18.1 per cent in the first seven months, trending down only slightly from 18.5 per cent in the first half.

But analysts say economic growth is starting to slow as measures to cool heated property prices and clamp down on riskier forms of lending put the brakes on activity.

Beijing’s efforts to reduce debt have pushed up lending rates, signalling tighter margins and tougher operating conditions for firms as debt servicing costs go up — a sign of slowing earnings growth over coming months. — Reuters