China industrial profits drop for seventh month as sales slow

Profits at industrial companies in China fell for a seventh month, extending a record streak of declines, as demand and sales weakened amid the economic slowdown.

Total profits of China's industrial enterprises fell 4.7 per cent in December from a year earlier, the National Bureau of Statistics said Wednesday in Beijing. That compared with a 1.4 per cent drop in November and was the third-biggest drop in more than three years, based on previously reported NBS data since 2011.

A main reason for the drop was "weak demand, which led to significant deceleration in production and sales," NBS said in a statement with the data, which includes both state-owned and privately owned enterprises.

"Significantly lower prices of industrial products exacerbated the drop." The report showed the worst losses were concentrated in industries with the most excess capacity such as metals and mining. The nation's leadership is working to reduce surplus industrial capacity in state enterprises, including planning major cuts to steel production capacity, even as they fight to prop up the slowest growth in a quarter of a century. "The overcapacity sectors were hit the hardest," Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a note.

"Monetary policy will have to remain extremely relaxed to help reduce the borrowing costs for the corporates."

Full-year industrial profits dropped 2.3 per cent in 2015 from the prior year, NBS said. Mining-sector profits dropped 58.2 per cent, led by a 75 per cent slide for oil and natural gas sector earnings and a 65 per cent decrease for coal companies.

Those losses were offset by a 2.8 per cent gain for manufacturing profits last year, which wasled by a 9.1 per cent gain for food companies.

State-owned enterprises registered a profit drop of 21.9 per cent for the full year, compared with a 3.7 per cent rise in the earnings for privately owned firms.