China industrial profit growth quickens as economy gains strength

BEIJING - Profit growth at China's major industrial firms gathered pace in June on strong sales and retreating material costs, official data showed Thursday.

Industrial companies with annual revenue of more than 20 million yuan ($2.97 million) reported about 727.8 billion yuan in profits last month, up 19.1 percent year on year, the National Bureau of Statistics (NBS) said in a statement.

The pace was faster than the 16.7 percent rate registered in May.

In the first half of the year, major industrial firms reported profits of 3.63 trillion yuan, a 22 percent increase from the same period last year.

Although the profit growth slowed from 22.7 percent in the January-May period, it far exceeded the 8.5 percent increase in 2016.

"China's industrial profits would maintain a steady medium-high growth of around 15 percent to 20 percent," said a research note by China Merchants Securities, although it predicted a slight retreat in accumulated profit growth next month.

The industrial sector, which accounts for about a third of China's GDP, started to pick up last year after profit declines in 2015, helped by government efforts to cut overcapacity and a recovery in the property sector.

NBS statistician He Ping attributed the H1 profit growth to strong production and sales, as well as reduced raw material costs during the period.

In evidence of the effects of China's ongoing supply-side structural reform, hi-tech and equipment manufacturing industries are contributing more to the profit growth, according to the NBS.

Equipment manufacturing took a 40.7 percent share of industrial profits in June, up 11.3 percentage points on May, while the mining industry accounted for 22.1 percent, down 13.4 percentage points.

In the January-June period, companies also reported healthier balance sheets. The average collection period for accounts receivable decreased from 38.1 days a year earlier to 37 days.

The corporate leverage ratio continue to decline. Debt-asset ratios of major industrial firms dropped 0.8 percentage points year on year to 55.9 percent.

Despite a general improvement, He warned of rising financing costs for the sector. In June, financial expenses rose 9.7 percent year on year, up 4.6 percentage points from May.

Thursday's data is the latest in a slew of economic indicators that showed China's economy is steadily stabilizing and improving, which has prompted global institutions such as the IMF to raise GDP forecasts for the country,

China's economy expanded 6.9 percent for the first half of 2017, with consumption and services, together with new innovation-driven economic sectors, taking up larger roles in the economy.

In light of the strong data and expectations of continued fiscal support, the IMF Monday revised up China's growth forecast for 2017 and 2018 to 6.7 percent and 6.4 percent respectively.

The Asian Development Bank has also upgraded its forecasts for China to 6.7 percent for 2017 and 6.4 percent for 2018.

While acknowledging the positive changes, Chinese policymakers have called for more focus on hidden risks to promote long-term sustainable growth.

In a meeting of the Political Bureau of the Communist Party of China Central Committee on Monday, the Chinese leadership stressed that there were still contradictions and problems within the economy, promising to take further measures to address long-standing issues such as mounting local government debt and rampant financial irregularities.