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Chinese Corporate Profit Growth Slows as Europe, Property Drag on Economy

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Source: Bloomberg

Chinese industrial companies’ profits growth cooled, adding to evidence the government may need to ease policy to protect the nation’s economic expansion.

Net income increased 24.4 per cent in the first 11 months of 2011 from a year earlier to RMB4.66 trillion (US$737 billion), the National Bureau of Statistics said on its website on Tuesday. The pace compared with a 25.3-per cent gain in the first 10 months and a 27-per cent rise in the first three quarters.

A lingering European debt crisis and a cooling domestic property market are dimming growth prospects for the world’s second-largest economy. More Chinese bankers are forecasting a further loosening in monetary policy as the expansion cools and households’ inflation expectations are easing, surveys by the central bank showed on December 22.

“We are likely to see a decline in profits as the economy slows and prices at factory gate are falling,” Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong, said before the release. “Slowing profits would provide further evidence of decelerating growth, adding pressure on policy easing.”

Industrial companies’ revenue climbed 28.2 per cent to RMB75.9 trillion for the first 11 months of the year, Tuesday’s report showed. Revenue expanded 29.1 per cent in the first 10 months.

For the month of November, industrial companies’ profit grew 17.9 per cent, compared with a 12.5-per cent pace in October, according to the data.

About 14.4 per cent of bankers expect more monetary policy easing in the first quarter of 2012, a central bank survey showed on December 22, compared with only 3.5 per cent last quarter.

The industrial profits data cover companies with annual sales from their main business of at least RMB20 million in 39 industries including oil and gas exploration, transportation equipment manufacturing, telecommunications and power generation.

A weaker yuan may spur an outflow of investment from China’s property market, curbing construction demand for steel and further cutting profits at Chinese steelmakers, Mirae Assets Securities Co said in a note on December 5.