China's official data showed that profits of the country's major industrial firms rose 6.9 percent year on year in the first seven months of 2016, accelerating from the 6.2-percent rise registered in the first half.
Total profits of industrial companies with annual revenues of more than 20 million yuan (3 million U.S. dollars) reached 3.52 trillion yuan during the January-July period, the National Bureau of Statistics (NBS) said on August 27.
In July alone, their profits surged 11 percent to 523 billion yuan, the second highest monthly growth this year and much faster than the increase of 5.1 percent in June.
He Ping, an official with the NBS Department of Industrial Statistics, attributed the strong growth in July to faster growth of products sales, dropping costs, commodity price rebounds, rebound of automobile industry's profits and a relatively low comparison base.
Liang Jing, a researcher at the International Financial Research Institute of the Bank of China, said companies' profits turned positive and kept growing driven by stabilized economy and rising prices since 2016, and the growth started to accelerate in each month since May.
Liang also said the improved profitability of the enterprises was caused by faster growth of industrial products prices and sales on the one hand.
The main business revenue of industrial companies rose faster than the previous month and the same time of the previous year by 0.5 percentage point and 3.1 percentage points, respectively.
On the other hand, it's contributed by bigger decrease of costs. In July, the average costs for those companies was 86.08 yuan for each 100 yuan of main business revenue, down 0.42 yuan from July 2015, the data showed.
Among the 41 industries surveyed, 30 posted year-on-year profit growth during the first seven months, with the crude oil processing, ferrous metal processing and non-ferrous metal processing sectors recording the strongest profit growth.
Moreover, profits of the automobile industry rose 19 percent from a year earlier in the month, with comparison of a 4-percent negative growth in June.
"Although industrial profit growth accelerated, market demand did not witness substantial improvement," He said, adding that problems including rising management fees and overcapacity will hinder further profit improvement.
Liang warned that pressure of pushing forward reducing capacity in steel and coal industry and longer accounts receivable collection period should be paid attention. With the continuous simulating measures carried out by the government, Liang expected industrial products prices to fall at slower pace and inventory pressure to further relieve, and she predicted industrial firms will see stable income growth.
GF Securities chief macro-economic analyst Guo Lei said as commodity prices touch the bottom, China is likely to end deflation and see price level go up again in 2016.
Based on experience, companies' profits will follow changes of the producer price index (PPI), so the profits would also recover, Guo said.
Ren Zeping, chief economist at Founder Securities, said the recovery of industrial companies' profits is expected to continue throughout the year. He predicted the PPI would turn positive in 2016 by the end of the year, which will also help companies increase profits.
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