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Rising costs hit China's corporate profit growth in May

Publication Date : 28-06-2014

 

Profit growth at major Chinese industrial companies decelerated in May because of sluggish business, higher inventories and rapidly increasing costs, said analysts.

The year-on-year growth rate of 9.8 per cent for the first five months was down slightly from the 10 per cent pace in the first four months, China's National Bureau of Statistics said on Friday.

He Ping, an analyst at the NBS, said slower growth in the electronics, coal and general equipment industries depressed the overall rate.

In May, revenues from industrial companies' core businesses rose 6.9 per cent year-on-year, down 2.8 percentage points from April.

Hao Daming, an analyst with Huarong Securities Co Ltd, said the slower growth was partly caused by rising interest expenses and other financial costs.

Interest expenses increased 10.4 per cent and financial costs soared 17.4 per cent in the first five months, compared with 9.5 per cent and 15.8 per cent in the first four months.

"The rising costs have squeezed companies' profits. They also reflected companies' difficulty in raising capital," Hao said.

Major companies' finished goods inventory rose 12.5 per cent to 3.5 trillion yuan (US$564 billion) in May, which ate into their profits.

In May, profits of industrial companies rose 8.9 per cent year-on-year to 512.7 billion yuan, down from 9.6 per cent in April.

Profits of State-owned enterprises increased 3.4 percent from January to May, while profits for private companies rose 12.9 per cent.

Among the 41 industries surveyed, 32 registered profit growth in the first five months, while eight saw their profits decline.

The coal mining and processing industries recorded a 43.9 per cent profit decline in the first five months.

Five industries - including vehicle manufacturing, electricity and heating power production and supply - accounted for 77 per cent of the profit growth.

Oil refining, coking and nuclear fuel processing recorded 49.3 per cent profit growth in the first five months, the highest among all industries. Vehicle manufacturing recorded 29.6 per cent profit growth.

Hao said the preliminary reading of the HSBC Holdings Plc and Markit Economics Purchasing Managers Index indicates that manufacturing industries have rebounded and major economic indicators for June will be more optimistic.

Xu Sitao, chief representative of the Economist Group in China, also said an improved reading for the manufacturing PMI in May suggested that the slowdown abated slightly in the second quarter.

To boost economic growth, the government has recently launched modest stimulus measures including tax cuts, accelerating infrastructure spending and targeted reserve requirement ratio cuts to boost funding for smaller companies and agriculture.

"China's economy should grow more than 7 percent this year, but activity has generally been lackluster in 2014, with the property and shadow banking sectors increasing the risk of a more pronounced slowdown," Xu said.

 

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