China's Industrial-Company Profit Growth Slumps
Chinese industrial companies’ profits grew at the slowest pace on record as the economy cooled and commodity prices plunged.
Net income increased 4.9 percent in the first 11 months of 2008 to 2.41 trillion yuan ($353 billion), the statistics bureau said today. Profits advanced 36.7 percent a year earlier.
The world’s fourth-largest economy grew at the slowest pace in five years in the third quarter as a global recession cut demand for exports and companies reduced output. Overcapacity in almost all industries and “unprecedented” drops in some commodity prices may hurt profits further, Li Yizhong, head of the nation’s industry regulator, said this month.
“The double-whammy of cooling demand and plunging prices have caused company profits to worsen seriously,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “Profits may shrink as much 15 percent over the next six months.”
The CSI 300 Index of domestic stocks declined 12.74, or 0.7 percent, to 1,858.03 at the midday break. The index has plunged 65 percent this year on concern that the economic slowdown will hurt earnings.
Profits at companies owned or controlled by the state fell 14.5 percent in the first 11 months to 798.5 billion yuan, compared with a 0.7 percent increase in the first eight months.
Steel Industry Profits
Steel-industry profits fell 13.7 percent after increasing 31.5 percent in the first eight months. Power-industry profits slumped 84.1 percent.
Baosteel Group General Manager He Wenbo said in November that his company is facing its “most difficult” period since it was founded 30 years ago. Spot prices of hot-rolled sheet have fallen 35 percent in China since June.
The government may buy steel stockpiles, offer subsidies for plant upgrades and give higher export rebates to help the nation’s steel industry, the largest in the world, weather a “severe” slowdown, ’’ Minister of Industry and Information Li said Dec. 12.
China’s policy makers are concerned that a slowing economy, combined with falling profits, will prompt companies to shed more workers, raising unemployment and fomenting social unrest.
In 2008 more than 10 million migrant workers had lost their jobs as of the end of November, Caijing Magazine reported Dec. 17, citing an unidentified labor ministry official.
Exports Drop
State-owned companies should avoid firing workers next year Li Rongrong, head of the State-owned Assets Supervision and Administration Commission said yesterday payday loans.
China’s exports fell for the first time in seven years in November, imports plunged and manufacturing contracted by a record. The World Bank forecast China’s economy will grow 7.5 percent in 2009, which would be the slowest pace in almost two decades.
To help exporters, the government said yesterday it would raise rebates on shipments of some machinery and electronics and let some trade with Hong Kong, Macau and Southeast Asia be settled in yuan.
Industrial output grew at the weakest pace in almost a decade last month. China’s zinc, aluminum and steel smelters all turned unprofitable this quarter after metal prices dropped. Prices of aluminum, used in car parts, have fallen 36 percent this year.
Social Stability
Industry regulator Li said Dec. 19 that measures must be taken to sustain production to protect jobs and social stability. China aims for 8 percent growth in 2009 and production accounts for 43 percent of the nation’s gross domestic product.
“No company can fight the tide of an overall economic slowdown,” said CICC’s Xing. “The government’s stimulus plans to build airports, low-rent homes and railways may start to help boost demand for industrial goods from the middle of next year.”
China has pledged to spend 4 trillion yuan ($585 billion) in an effort to spur growth and limit unemployment. The central bank on Dec. 22 lowered its key lending rate for the fifth time in three months to help trim corporate funding costs.
China’s producer price inflation dropped to 2 percent last month from the peak of 10.1 percent in August, adding pressure on metal smelters and processors of oil and chemicals.
Sinopec Shanghai Petrochemical Co., the nation’s biggest ethylene maker, expects to post a “substantial loss” this year on a decline in prices.
Today’s increase in profits compared with a 19.4 percent gain in the first eight months. Overall, industrial companies’ sales rose 24.1 percent to 43.95 trillion yuan, down from a 29 percent increase in the first eight months.
Quarterly data on industrial profits was first released in February 2007.