Chinese industrial companies reported profits fell the most in at least four years, as the pillars of China’s infrastructure-led growth model suffered from a devalued yuan, a tumbling stock market and weak demand.
Industrial profits tumbled 8.8 percent last month from a year earlier, with the biggest drops concentrated in producers of coal, oil and metals, the Chinese National Bureau of Statistics (NSB) said yesterday in Beijing.
It was the biggest decline since the government began releasing monthly data in October 2011, according to data compiled by Bloomberg.
Photo: AP
China’s stock market plunge and currency devaluation are adding new challenges for the world’s second-largest economy as it struggles with excess capacity, sluggish investment and weaker manufacturing.
The nation’s official factory gauge slumped to a three-year low last month, while Bloomberg’s monthly GDP product tracker also remained below the government’s 7 percent goal with a reading of 6.64 percent.
“Companies are facing enormous operational pressures,” said Liu Xuezhi (劉學智), a macroeconomic analyst at Bank of Communications Co in Shanghai. “The momentum of growth is weak, and the downward pressure on the economy is relatively large.”
Profits in coal mining plunged 64.9 percent in the first eight months of this year from the same period last year, while oil and gas profits tumbled 67.3 percent, the report said. Ferrous metal smelting earnings fell 51.6 percent.
The drop in profit was attributed to falling product prices, lower investment returns and foreign-exchange losses, NBS official He Ping (何平) said in an analysis on the bureau’s Web site.
The report is a gauge of earnings from industrial companies that have 20 million yuan (US$3.1 million) or more in annual “core business income,” according to the bureau.
Producer prices, or the price of goods as they leave the factory, slumped to a six-year low last month, according to the bureau.
Prices have been declining for more than three years, the data show.
“Severe factory-gate deflation and high interest rates are dual poison for profits,” said Uwe Parpart, chief strategist at Reorient Securities in Hong Kong. “The message to policymakers should be perfectly clear: Ease monetary policy drastically to get in line with the rest of the zero-interest-rate world.”
The Shanghai Composite Index reversed earlier losses to close 0.3 percent higher yesterday at 3,100.76, paring its loss from a June 12 peak to 40 percent.
Contributions from investment returns fell amid China’s stock market rout, while exchange-rate losses rose “noticeably” due to yuan volatility, pushing companies’ financial costs up by 23.9 percent last month from a year earlier, compared to a 3 percent drop in July, according to the bureau.
Chinese Premier Li Keqiang (李克強) has responded to the slowest growth in 25 years with policy easing measures, including five interest rate cuts since November last year, reductions in the amount of deposits banks must hold as reserves, a surprise currency devaluation last month and increased fiscal support.
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