China Industrial Profits Surge Most Since 2011

Chinese industrial profits jumped the most since 2011, underscoring resilience in the economy as authorities intensify their efforts to cut excess capacity and reduce pollution.

Key Points

Industrial profits increased 27.7 percent in September from a year earlier, compared with a 24 percent pace a month earlier, the statistics bureau said Friday
September profit was 662.2 billion yuan ($99 billion)
January to September profits increased 22.8 percent on-year to 5.58 trillion yuan

Big Picture

Robust factory inflation, industrial output and consumer spending have been keeping the expansion on track this year. Steady growth and sustained profits give policy makers room to attack pervasive pollution, excess capacity and speculative borrowing after President Xi Jinping and top leaders this week signaled they’ll push harder to transition from a rapid growth model to one more focused on high-quality development.

Economist Takeaways

“This pace of growth won’t be sustainable” because the greater pricing power that aided profits will eventually reverse, said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. The data most likely reflect companies that avoided being shut by deleveraging or environment curbs, which boosted profits as rivals closed, Xie said.

“Given PPI and GDP developments, we shouldn’t be surprised,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “However, we should not forget that this delays China’s rebalancing toward a consumption- and service-based economy.”

The Details

Faster producer-price inflation and improving output and sales have aided profits, the statistics bureau said in a statement
Wine, beverage and tea industries led gains, followed by the telecommunications and computer sectors, the agency said
Electricity and heating companies swung back to profit after reporting losses
Source: Bloomberg