Industrials report weaker profit growth
Net income increased 5.3 per cent from a year earlier to 464.9 billion yuan ($73 billion), down from a growth rate of 17.2 per cent pace in the first two months, the National Bureau of Statistics said. Profit in the first quarter rose 12.1 per cent to 1.17 trillion yuan, it said.
China's stockmarkets fell for a third straight month in April amid investor concern the recovery in the country's economic expansion is losing momentum and will hurt corporate earnings. The benchmark Shanghai Composite Index closed 1 per cent lower on Friday, the last trading day before a holiday ending May 1.
"Profits are only growing in line with sales and with problems of overcapacity and the sluggish global picture, it doesn't bode well for a speedy return to higher profit margins," Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong, said. "Heavy industries especially still face destocking and higher costs, but if there is a silver lining, industries catering to the consumer, like textiles, food and beverages, seem to be doing much better."
Industrial companies' revenue rose 11.9 per cent in the first three months to 22.2 trillion yuan, down from 13.1 per cent growth in the first two months.
Profit margins in the first quarter were 5.3 per cent, the same as the first three months of 2012, the data shows. The report covers companies in 41 industry categories.
Gross domestic product in the world's second-biggest economy expanded 7.7 per cent in the first three months of 2013 from a year earlier, down from 7.9 per cent in the fourth quarter. Goldman Sachs, RBS and JPMorgan Chase have cut their estimates for full-year growth to 7.8 per cent. That would be the same pace as 2012 which was the weakest in 13 years.
Industrial growth is facing downward pressure amid slowing domestic and international demand, the Ministry of Industry and Information Technology spokesman said. Profits at industrial companies were at "very low levels" compared with the past few years because of falling product prices and surging costs.
Aluminum Corp of China, the nation's biggest producer of the metal, on April 26 reported its sixth straight quarterly loss.
Vehicle manufacturing earnings dropped 1 per cent last month from a year earlier after a 20 per cent increase in the first two months, the statistics bureau said. The drop in coal industry profit accelerated in March to 50 per cent from 35 per cent in the first two months.
Frequently Asked Questions about this Article…
In March 2013 net income for Chinese industrial companies rose 5.3% year‑on‑year to 464.9 billion yuan (about $73 billion), a sharp slowdown from the 17.2% growth pace seen in the first two months of the year. For the whole first quarter profits increased 12.1% to 1.17 trillion yuan.
Industrial company revenue grew 11.9% in the first three months of 2013 to 22.2 trillion yuan, down from 13.1% growth in the first two months. Reported profit margins for the quarter were 5.3%, the same level as the first three months of 2012. The report covered companies across 41 industry categories.
The slowdown is linked to weaker domestic and international demand, overcapacity, falling product prices and rising costs. Analysts and officials cite heavy‑industry destocking and higher input costs as key pressures, which are limiting a return to higher profit margins.
According to the data and commentary, consumer‑facing industries such as textiles, food and beverages are faring relatively better. In contrast, heavy industries are struggling with destocking and higher costs. Specific trouble spots cited include coal (large profit drops), aluminum (major producer reporting losses) and vehicle manufacturing (earnings fell in March).
China’s stock markets fell for a third straight month in April amid investor concern that the economic recovery is losing momentum and will hurt corporate earnings. The Shanghai Composite Index closed about 1% lower on the last trading day before the May 1 holiday referenced in the article.
The slowdown in industrial profits comes alongside a slight cooling in headline growth: China’s GDP expanded 7.7% in Q1 2013, down from 7.9% in Q4. Major banks including Goldman Sachs, RBS and JPMorgan cut full‑year growth estimates to about 7.8%, roughly matching 2012’s weaker pace.
Yes. The article notes that Aluminum Corp of China, the country's largest aluminum producer, reported its sixth straight quarterly loss (reported on April 26). The coal sector also saw accelerating profit declines, and vehicle manufacturing earnings dipped in March.
Investors should monitor upcoming corporate earnings for heavy industries (aluminum, coal, vehicle makers), trends in profit margins and revenues, signs of destocking or rising input costs, and macro indicators like China’s quarterly GDP. Also watch market reactions such as movements in the Shanghai Composite, which fell amid these concerns.
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