Profit growth of industrial companies slows last year

Profit of China’s industrial firms increased by 10.3 percent year-on-year in 2018, 1.5 percentage points lower than the first 11 months of last year, the National Bureau of Statistics said on Monday.

Analysts said the data show the pressure on industrial companies, but China’s consistent push for high-quality growth will help enterprises better deal with slowdowns in sales and their debt-asset ratios are likely to continue dropping.

The bureau said the profits of China’s major industrial firms totaled 6.635 trillion yuan ($985.8 billion) in 2018. Profits in 32 of the 41 sectors surveyed rose compared with a year earlier, two less than during the January-November period.

He Ping, a senior statistician at the bureau, said in a statement that profit maintained relatively rapid growth last year, even with a high comparative base of 21 percent in 2017.

Oil and gas exploration registered the biggest expansion, with profits more than quadruple those of a year ago, he said. Nonmetallic mineral products, ferrous metal smelting, chemical product manufacturing and the alcohol and beverage sector posted year-on-year growth ranging from 15.9 to 43 percent.

Those five industries contributed 77.1 percent to the overall industrial profit increase.

But in December alone, the combined profits at industrial firms with annual revenue of more than 20 million yuan fell by 1.9 percent year-on-year, compared with a decline of 1.8 percent in November.

Li Chao, an analyst at Huatai Securities, said in a research note that the weakening trend may continue in the first three quarters of 2019 amid overall economic growth easing and falling orders.

The numbers may start to rebound in the fourth quarter, Li added.

Despite falling profit growth, the performance of China’s major industrial enterprises has continued to improve in terms of their liability ratio.

The bureau said that by the end of December, the debt-asset ratio of major industrial firms dropped 0.5 percentage point from a year earlier to 56.5 percent, and that of State-owned enterprises declined by 1.6 percentage points to 58.7 percent.

Qu Xianming, an expert of the National Manufacturing Strategy Advisory Committee, said as the government stepped up efforts to upgrade its sprawling industries and encourage enterprises to pursue high-quality growth, they will be in a better position to deal with challenges.

“With the supply-side structural reform deepened, their debt-asset ratio is likely to fall further,” Qu added.

The authorities have promised to make more infrastructure investments and appropriately loosen monetary policy to stabilize growth.