Industrial profits rise 16.1% in first 2 months

Policy support to reduce costs, higher sales help boost growth

The nation's industrial profits grew significantly in the first two months of the year, thanks to policy support to lower costs and higher sales offsetting weaker price rises.

Industrial profits increased by 16.1 percent to 968.9 billion yuan ($154.6 billion) in the January-February period compared to the same period last year, up from the 10.8 percent growth in December, data from the National Bureau of Statistics showed on Tuesday.

Profit growth in sectors such as oil and natural gas extraction and pharmaceutical manufacturing helped drive up the overall profit growth, according to the NBS.

Better than expected demand in the first two months led to stronger growth of industrial product sales, which helped offset the downward pressure from slower price rises, according to Liang Jing, an analyst with the research institute of Bank of China.

In the first two months, the industrial added value increased by 7.2 percent year-on-year, up 1 percentage point compared to December.

Revenue from companies' major businesses increased by 10 percent year-on-year in the first two months, which is 1.2 percentage points higher than that in December.

Looking ahead, analysts expect slower profit growth in the near future due to the high base effect in the past several months, but they expect relative strong growth in the medium-to-long run as the growth momentum persists.

Gao Ming, an analyst with China Merchants Securities, said government support implemented since last year, such as efforts to lower production costs and tax cuts, will continue to help increase the efficiency of industrial production.

He expected industrial profit growth will increase by around 13.2 percent in 2018.

While many manufacturing sectors failed to see major improvement in profit growth in the first two months due to cyclical factors, government support to lower enterprises' debt levels will encourage enterprises to restructure to achieve more sustainable profit growth in the long run, according to Gao.

The overall debt level of State-owned enterprises has been declining steadily as the government implements measures to help enterprises to improve asset quality.

Some promising signs can be found in enterprises' financial performance, reflected by improved cash flows, higher investment returns and improved performances of inventories, according to a research note by China International Capital Corporation.

The profitability of consumer-related manufacturing enterprises is expected to see continued improvement, including food and consumption upgrade related industries, according to CICC.