China industrial profit declines

Profits earned by Chinese industrial companies declined 8.8 percent in August from a year earlier due to rising costs and persistent falling prices, official data showed on Monday, adding to signs of weakness in the world’s second largest economy.

The figures came after a string of poor data showing the slowing pace of the traditional drivers of China’s growth sent shockwaves through markets worldwide.

Firms controlled by local governments reported a 1 percent drop in profits in the first eight months, which compared with a 3.6 percent rise in profits in the January-July period, it said.

The report is a gauge of earnings from industrial companies that have 20 million yuan ($3.1 million) or more in annual “core business income”, according to NBS.

The statistics bureau also noted that some export-oriented enterprises suffered foreign exchange losses as a result of yuan’s depreciation in August, which contributed to increased financial costs.

But Xu Yating, an economist with IHS Global Insight, warned the dent in industrial profit could broaden to affect consumer goods makers.

“Companies are facing enormous operational pressures”, said a bank analyst.

“Severe factory-gate deflation and high interest rates are dual poison for profits”, said Uwe Parpart, chief strategist at Reorient Securities in Hong Kong.

Financial payments of industrial firms’ increased by 23.9 per cent in August from a year earlier, compared with a 3 per cent year-on-year drop in July.