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China's industrial firms having a hard time earning profits


Source: CGTN    Published: 2018-12-27

China's industrial firms cooled during the first 11 months of this year. Earnings for November alone decreased 2 percent to 600 billion yuan (87.4 billion U.S. dollars), the first contraction in three years, according to the National Bureau of Statistics.

Profits for China's industrial sector rose 12 percent year-on-year for the first 11 months of this year, down from a 14-percent increase in the first 10 months. Analysts said that slowing demand, low producer prices and rising costs were to blame for the downbeat numbers.

“Price fluctuations played a significant role in the profit slowdown. Upstream industries, including raw materials and mining, enjoyed relatively high earnings. That's while downstream sectors, such as processing, suffered big losses,” said Zhang Hangyan, a researcher at the Institute of Industrial Economics.

The data shows that profits for the mining and manufacturing sector rose 45 and 10 percent respectively, driving the overall profit growth. New industrial profits coming from crude oil, steel, construction materials, chemicals and manufacturing industry accounted for more than 76 percent of the new earnings. In contrast, the non-ferrous materials sector took a hit, posting a 17 percent profit loss from a year earlier. The auto sector also saw its earnings decline, down 6 percent compared with the same period a year ago.

“It is normal that new profit growth is coming from the energy, steel, and construction sectors with higher profits since all the products from traditional sectors are demanded by the market. Sectors like energy, steel, and construction sectors are the engine of the profits,” said Liu Zhiqin, a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China.

Profits differ from different types of companies. State-controlled companies' profits are up 16.1 percent versus 4.2 percent for foreign companies and 10 percent for private companies.

Liu pointed out that: “This is quite normal, if the figure for SOE is lower than others, they will be sharply criticized. The state companies have enough resources, they should have better performance and profits. And the reason why foreign companies have the lowest figure is because of the narrow products they have in China.” He also shows confidence in the future that the differences will not be expanded.

Faced with the challenging international environment, China has been dealing with protectionism and other pressures. The data not only mirrors the current situation but also pointed out some signals that needed for attention.

“The signals including how to go forward with the cooperation with foreign companies. And second is that we have to reduce the cost for production and increase the efficiency in order to compensate all the losses that could happen in the international market. But, of course, winter time is the time for the industries to get some time to rest,” said Liu.

Liu Zhiqin is a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China.

Key Words: China   industrial firms   profits   Liu Zhiqin  

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