Gov't cites higher costs, stock volatility for drop
Profits earned by Chinese industrial companies fell 8.8 percent in August from a year earlier, according to official data released Monday by the National Bureau of Statistics of China (NBS). Experts say the lowest industrial profits in four years represent the latest sign of a sustained slowdown in the Chinese economy.
The latest figure follows July's 2.9 percent drop. Industrial profits for the first eight months of the year declined 1.9 percent from the same period last year.
State-owned enterprises experienced the biggest drop in profits from January to August this year, declining by 24.7 percent, according to the NBS. And mining sector profits in the first eight months of the year tumbled 57.3 percent, the largest drop of all industries.
He Ping, an NBS expert, attributed the August decrease to higher costs for industrial firms, lower product prices and a lower return from stock market investments.
In a statement posted on the NBS website Monday, He said that the cost for industrial companies rose 1.1 percent compared to the same period last year, as opposed to July's 0.4 percent rise.
Meanwhile, the producer price index (PPI) fell significantly by 5.9 percent in August, He said, citing weak demand for industrial products.
He also cited fluctuations to the value of the yuan, saying it significantly lowered the profits of firms involved in foreign trade.
He said the decline in profits of firms in the oil, automobile and chemical industries contributed greatly to the drop industrial profits.
Tian Yun, an expert at the China Society of Macroeconomics, said he is not surprised industrial profits have dropped, given the Chinese economy's recent performance.
"The drop in industrial profits was inevitable in light of the record drop in the PPI and other indicators," Tian told the Global Times on Monday, adding that it could get even worse.
Official NBS data released on July 15 showed China's GDP grew 7 percent in the first half year of 2015, compared to the same period last year.
A report on Sunday in the Economic Observer newspaper said China's GDP will grow below 7 percent in the third quarter, citing a survey of 79 economists.
However, in an interview with the Wall Street Journal last week, Chinese president Xi Jinping said the Chinese economy is "still operating within the proper range."
Wang Jun, a research fellow at the China Center for International Economic Exchanges, believes that the shutdown of factories during the military parade in Beijing last month had some effect.
To prepare for the military parade commemorating the 70th anniversary of the end of WWII, 12,255 coal-fired boilers, factories and cement-mixing stations in seven provinces were closed in August to ensure better air quality, according to media reports.
Wang said profits of industrial firms will continue to decline but will not be as bad as in August. Wang added the Chinese economy is still showing weakness and has not fully been stimulated by recent interest rates and cuts in the banks' reserve requirement (RRR).
Amid an economic slowdown and stock market volatility, the People's Bank of China (PBC), China's central bank, has cut interest rates and the RRR twice since June. Most recently, the PBC in August cut lending and deposit interest rates by 0.25 percentage points, and lowered the RRR by 0.5 percentage point.
Tian said calls for further cuts might not be as effective.
"At the moment, monetary policies have done little to change the overall climate of the Chinese economy," Tian said. Government measures will help, but results will take some time, he added.
