China’s Nov industrial profits see sharpest fall in 27 months

Train conductors dance to celebrate the high-speed railway from Lanzhou to China’s far-western Xinjiang region at the Urumqi south railway station in Urumqi. China tied the restive far-western region of Xinjiang closer to the rest of the country by opening a high-speed rail line between its capital Urumqi and Lanzhou, in neighbouring Gansu, nearly 1,800 kilometres away. — AFP

Shanghai: Chinese industrial profits dropped 4.2 per cent in November to 676.12 billion yuan ($108.85 billion), official data showed on Saturday, the biggest annual decline since August 2012 as the economy hit major unexpected headwinds in the second half.

Despite last month’s drop, profits for January-November were 5.3 per cent higher than in the first 11 months of 2013, according to the National Bureau of Statistics (NBS) data.

The NBS attributed November’s profit drop to declining sales and a long-running slide in producer pricing power.

“Increasing price falls shrank the space for profit,” the agency said.

It said the impact of prices for coal, oil and basic materials falling to their lowest levels in years “was extremely clear”.

As the NBS analysis suggested, the net slide in industrial profits was driven primarily by weakness in coal mining, and oil and gas industries, where November profits tumbled from a year earlier by 44.4 per cent and 13.2 per cent respectively.

Oil, coking coal and nuclear fuel processing industries saw their profits slide by 34.2 per cent, according to the data.

On the upside, Chinese technology industries saw profits grow sharply last month. Telecommunications firms saw a 20.7 per cent increase, electronics and machinery grew 15.1 per cent and automobile manufacturers enjoyed a 16.7 per cent gain.

“This suggests that on the one hand, in the context of weak investment demand, stable consumption demand provided a certain degree of support; on the other hand, promoting industry restructuring is having a positive effect on efficiency,” the NBS analysis said.

However, the unbalanced nature of the performance highlights a quandary regulators face. They want to restructure the Chinese economy away from credit- and energy-intensive heavy industries toward lightweight technology products and services, yet they must also avoid causing a crisis in the financial system.

If Beijing allows mass closures among its sagging erstwhile industrial champions in the name of economic transformation, it also risks forcing a wave of bad loans onto bank balance sheets. That would make banks even more reluctant to lend to the next-generation companies which authorities want them to support.

Economists are debating whether the monetary easing steps taken in recent months — including late November’s surprise interest rate cut - can prove effective in a context where many companies are seeking fresh capital primarily to roll over existing debt amid weak customer demand, while China’s most successful firms remain reluctant to borrow.