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China industrial profits up 19.1% in June despite borrowing cost worries

This signals that economic momentum remains solid as China recorded good performance even in May

Reuters  |  Beijing 

China industrial profits up 19.1% in June despite borrowing cost worries

Earnings for China's industrial firms surged 19.1 per cent in June from a year earlier, accelerating from May in a sign that economic momentum remains solid, even as rising have raised concerns about pressure on margins.

Profits in June rose to 727.78 billion yuan ($107.83 billion), the (NBS) said on its website on Thursday.

For the first half of the year, the firms notched up profits of 3.63 trillion yuan, a 22 per cent jump from the same period of last year and just a touch slower from the 22.7 per cent annual growth in the January-May period.

The robust growth of industrial earnings in June was in part driven by continued appetite for iron ore and other commodities, whose prices have recovered modestly after taking a hit since March.

Statistics bureau official He Ping said in a statement accompanying the data that accelerated profits growth in steel, auto and electronics sectors helped to boost overall earnings.

"Another issue that requires close monitoring is the rising financing costs for companies," He added.

Chinese policymakers launched a flurry of regulatory measures early this year to tackle financial risks from a rapid build-up in debt. That has raised borrowing rates, a headwind for businesses, particularly those struggling to reduce their debt servicing costs.

With recent data showing the holding up better than expected, most analysts expect the regulatory restrictions to remain in place through this year, but do not see fresh tightening until after a critical leadership reshuffle in autumn.

Chinese policymakers have leaned on property investment and infrastructure spending, including their plan to build a modern "Silk Road" trading route, helping fuel a building boom that has boosted demand and prices for materials from steel to cement.

China's June producer price inflation remained well off highs seen earlier this year, amid lingering oversupply issues in the steel sector.

With producer price inflation having peaked, profitability and new investment are seen tapering off this year, although strong exports and investment returns have helped industrial firms to weather a tightening in monetary conditions.

China's grew a faster-than-expected 6.9 per cent in the second quarter, matching the first quarter's pace, thanks to solid exports, industrial production and consumption. However, some moderation in growth is expected later this year as policymakers' efforts to rein in property and debt risks weigh on activity.

The relatively solid economic growth is no doubt welcome news for President ahead the major political leadership reshuffle in autumn, with authorities keen to ensure a smooth run-up to the meeting. Any sharp drop in industrial profits, a low-risk at this stage, will be a concern for policymakers as it risks rippling across the broader

Industrial companies' rose 6.4 per cent year-on-year as of end-June, the statistics bureau said.

Profits at China's state-owned firms were up 45.8 per cent at 805.5 billion yuan in January-June, compared with a 53.3 per cent rise in the first five months.

The data includes companies with annual operating revenue of more than 20 million yuan from their main operations.

First Published: Thu, July 27 2017. 11:35 IST