China’s 2016 industrial profits rise most in 3 years

BEIJING: Profits for China’s industrial firms rose the most in three years in 2016 as a construction boom fuelled a rally in prices of building materials from steel to cement, giving companies more flexibility to start chipping away at a mountain of debt.
Strong profit growth of 8.5 per cent last year suggests there may be a solid pick-up in industrial investment in 2017, though many analysts still expect China’s overall economic growth to cool to around 6.5 per cent this year from 6.7 per cent in 2016.
Industrial profits fell 2.3 per cent in 2015.
Profits in December rose 2.3 per cent from a year earlier to 844.4 billion yuan ($122.76 billion), the National Bureau of Statistics (NBS) said on Thursday, slowing sharply from growth of 14.5 per cent in November.
But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms. Profits in the coal mining sector surged 223.6 per cent in 2016, while those for iron and steel production and processing companies rose 232.3 per cent.
Baoshan Iron and Steel (Baosteel) said last week that it expected its net profit to rise 770 per cent in 2016 from a year earlier.
Baosteel Group is taking over rival Wuhan Steel to create the world’s second-largest steel-maker, in the government’s biggest effort yet to consolidate its fragmented steel industry.
China’s stock market investors have cashed in on the industrial revival. An index tracking the industrial sector has risen around 22 per cent since June 2016 and reached a 10½ month high in November.
UNDERLYING WEAKNESS: The NBS said a narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing contributed to the overall 2016 earnings turnaround.
But part of the reason for the strong numbers last year was simply due to a weak base of comparison from the previous year and the foundation for further improvement in the industrial sector was not stable, the stats bureau added.
“Average profit growth over the last two years has not kept up with output growth,” NBS said in a statement. “An unreasonable demand structure, difficulties collecting funds and high costs are a drag on corporate profits.”
Indeed, the amount of time it took companies to collect payment rose to 36.5 days in 2016, while the increase in accounts receivables accelerated to 9.6 per cent. The efficiency of production also fell, with companies having to invest more to generate the same amount of revenue as in the past.
The stats bureau said the slower profit growth in December was due to volatility in oil prices and adjustments by some firms to their product structure. Profits for firms which make computers and other electronic equipment fell 10.5 per cent in December, after rising 45.4 per cent in November, possibly due to fewer new product launches at the end of the year. — Reuters