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Industrial Profits Return to Steady Growth

Dr. He Ping from the Department of Industry, National Bureau of Statistics Explained Profits of Industrial Enterprises from January to September 2016

Submit Time:12-12-2016 | Zoom In | Zoom Out

Author: | Source:National Bureau of Statistics

Abstract:

The financial data released by the National Bureau of Statistics on October 27 show that profits of industrial enterprises above designated size grew by 8.4% on a year-on-year basis from January to September, with the growth rate being basically the same as that from January to August (down 0.03 percentage points actually). Profits in September realized year-on-year growth of 7.7%, down 11.8 percentage points over August. 

1. Enterprises' profits continued to improve 

The slowing growth of profits in September represented a return to steady growth. Overall, the basic situation where enterprises' profits continued to improve remained unchanged. 

Prices of industrial products rebounded significantly. In September, the producer price index (PPI) rose by 0.1% on a year-on-year basis, bringing to an end the trend of year-on-year decline for 54 months in a row, and indicating that the supply-demand imbalance in the domestic industry is increasingly eased. 

Profit margins continued to rise on a year-on-year basis. In September, the profit margin of main business income of industrial enterprises above designated size was 5.73%, up 0.21 percentage points over the same period last year. 

Financial expenses continued to decline on a year-on-year basis. In September, enterprises' financial expenses fell by 5.5% year on year, continuing the downward trend since the beginning of the year. 

Profits of the mining industry exhibited a change from decline to increase. In September, profits of the mining industry rose by 30.3% on a year-on-year basis but fell by 25.3% in August, reversing trend of continuous year-on-year decline since October 2013. 

Profits of iron and steel, nonferrous metals, building materials and other traditional raw materials industries rallied. In September, the ferrous metal smelting and rolling processing industry experienced a change from year-on-year losses of RMB 1.46 billion to profits of RMB 15.13 billion; profits of the non-ferrous metal smelting and rolling processing industry increased by 46.9% on a year-on-year basis; profits of the non-metallic mineral products industry grew by 10% on a year-on-year basis. 

State holding enterprises continued to achieve accelerated growth of profits. Following the rapid growth of 39.4% in August, the profits grew by 47.6% in September, setting another record high of this year. Among the state holding enterprises, profits of central enterprises rose by 27%, up 19.4 percentage points over August. 

2. The supply-side structural reform produced a marked effect 

Data show that the supply-side structural reform in the industrial sector produced a marked effect. 

Stocks continued to decline. At the end of September, stocks of finished goods of industrial enterprises above designated size fell by 0.8% on a year-on-year basis, continuing the downward trend since the beginning of the year. 

The leverage ratio continued to decline. At the end of September, the asset-liability ratio of industrial enterprises was 56.3%, down 0.6 percentage points on a year-on-year basis and 0.1 percentage points over August. 

Unit costs continued to decrease. In September, the cost per RMB 100 of main business income of industrial enterprises was RMB 85.87, down RMB 0.11 on a year-on-year basis. 

3. Production and sales slowed down and the base effect was weakened, leading to falling growth of profits 

The obvious slowing growth of profits of industrial enterprises in September is mainly attributable to the following reasons: 

Growth of industrial production and sales slowed. In September, the added value of industrial enterprises above designated size actually increased by 6.1% on a year-on-year basis, down 0.2 percentage points over August; the main business income of industrial enterprises above designated size grew by 3.9% on a year-on-year basis, down 1 percentage point over August. 

Growth of profits of electronics, steel and electric power industries declined. In September, the majority of the 41 categories of industries experienced declining growth of profits. Due to slowdown of revenue growth and the change of financial expenses from fall to rise, profits of the manufacturing industry of computer, communications and other electronic devices rose only by 1.7% on a year-on-year basis, sharply down 39.1 percentage points over August. Because of narrowing decrease in financial expenses, profits of the ferrous metal smelting and rolling processing industry increased by RMB 16.59 billion on a year-on-year basis, down RMB 4.45 billion over August. As a result of electricity price cut and revenue growth slowdown, profits of the electricity and heat production and supply industry fell by 23.2% on a year-on-year basis, up 22.8 percentage points over August. Because of narrowing decrease in financial expenses, profits of the chemical raw materials and chemical products manufacturing industry rose by 7.2% on a year-on-year basis, down 13.7 percentage points over August. Due to slowing revenue growth, profits of the general equipment manufacturing industry fell by 10.8% but increased by 6.5% in August. The above five industries together pulled down the growth of profits of industrial enterprises above designated size by 6.9 percentage points. 

The low base effect was significantly weakened. In August last year, under the combined action of multiple unfavorable factors such as sales slump, price bottom, rising costs, stock market downturn and foreign exchange losses, industrial profits fell sharply, resulting in a lower base and boosting growth in August this year. In September this year, the low base effect was significantly weakened, so profit growth dropped markedly over August. 

4. Unfavorable factors that restrict profit improvement still exist 

Although industrial profits returned to steady growth, unfavorable factors that restrict enterprises' profits still exist, including overall weak demand of domestic and international markets, and rapid increase in enterprises' accounts receivable and rising proportion of them in the working capital. In addition, asset-liability ratios of coal, steel and other industries rebounded vigorously. Therefore, while eliminating excess capacity, promoting industrial upgrading and improving enterprises' profits, we should also pay attention to preventing debt risks against enterprises. 


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