News & Reports News Year 2012 September , 2012 China industry profit falls 6.2% in August

China industry profit falls 6.2% in August

Chinese manufacturers posted the sharpest fall in profit this year in August, reflecting deteriorating conditions and prompting calls for further policy easing.

Net earnings of domestic industrial firms fell 6.2 percent from a year earlier to 381.2 billion yuan (US$60.5 billion) last month, the worst this year compared with July's decrease of 5.4 percent, the National Bureau of Statistics said today.

In the first eight months, industrial earnings lost 3.1 percent to 3.05 trillion yuan, a sharp drop from last year's increase of 25.4 percent.

"China's manufacturers are suffering from higher production costs, which are not compatible with sluggish sales in both external and internal markets right now," said Li Maoyu, an analyst at Changjiang Securities Co. "The country needs to enhance policy efforts to support struggling industrial companies."

Chang Jian, a Barclays economist, said "slowing external demand and insufficient policy supports are two major risks that could further delay the modest growth recovery that people expect in the third quarter."

China's gross domestic product expanded 7.6 percent year on year in the second quarter, the slowest pace in three years. Some economists have cut their third-quarter growth forecast to as low as 7.3 percent.

However, there are signs of improvement. The HSBC Flash Purchasing Managers' Index, the earliest available indicator of China's industrial activity, rose to 47.8 in September from 47.6 in August, though still in the range of contraction.

Xue Jun, an analyst at CITIC Securities Co, said a modest policy support has helped to stabilize the growth.

The longer-than-expected slowdown prompted the government to speed up approvals for major investment projects and to inject liquidity into the banking system through reverse repurchase agreements in recent months.

The government also promised faster return of export tax rebates, more loans to exporters and wider coverage of export credit insurance in an effort to boost China's trade and economy.

Private businesses still reported an average profit growth of 15.1 percent in the first eight months, the bureau's data showed, while the earnings of foreign-invested firms and those from Hong Kong, Macau and Taiwan slumped 12.7 percent. State-owned enterprises posted a profit decrease of 12.7 percent.

Among 41 industries being tracked, 24 reported a profit growth during the first eight months, led by electricity industry whose profit jumped 36.5 percent from a year earlier.