China’s August industrial profits surge nearly 20%, fastest in 3 years

Profits earned by China’s industrial firms during August grew at the fastest pace in three years helped by rising sales, higher prices and lower costs, pointing to strengthening economic activity.

The world’s second-largest economy has shown recent signs of stabilization, propped up by a housing boom and government spending, but growth has been patchy with companies in some sectors such as steel not faring as well due to excess capacity.

Profits in August jumped 19.5 percent to 534.8 billion yuan ($80.2 billion), the National Bureau of Statistics (NBS) said on Tuesday, the fastest monthly rate since August 2013. Annual profit growth was 11 percent in July.

Industrial profits in August have shown positive changes and government policies continue to produce effects, NBS official He Ping said in a statement accompanying the data.

He said rapid growth in August was also boosted by a low base of comparison last year.

China’s traditional industries continue to struggle, particularly in sectors hobbled by overcapacity, He said.

The profit data by sector, however, highlights the uneven stabilization.

Manufacturing profits rose 14.1 percent from a year earlier while mining industry profits fell 70.9 percent.

Total profits for the January-August period rose 8.4 percent from the same period a year earlier, compared with a 6.9 percent rise in the first seven months of this year.

Chinese industrial firms’ liabilities at the end of August were 4.6 percent higher than at the same point last year.

The data covers large enterprises with annual revenues of more than 20 million yuan from their main operations.

Bank of America Merrill Lynch highlighted risks to corporate earnings in a recent report on listed firms.

“We think a housing bubble in top cities is a genuine risk, and stimulus may weaken due to a renewed focus on the supply-side reform; we expect earnings to come under significant pressure again reasonably soon,” it said.

The Asian Development Bank on Tuesday increased its growth forecast this year for China to 6.6 percent from 6.5 percent, and for 2017 to 6.4 percent from 6.3 percent, citing fiscal and monetary stimulus measures.

($1 = 6.6693 Chinese yuan)

Source: Reuters