China Industrial Profits Jump Most in Three Years in August (1)

(Bloomberg) -- Profits of China’s industrial corporations jumped the most in three years, adding to evidence of continued stabilization in manufacturing and boosting prospects for their ability to repay debt.

Industrial profits rose 19.5 percent in August from a year earlier to 534.8 billion yuan ($80.2 billion), the National Bureau of Statistics said Tuesday. That completes August data that showed new credit, industrial output, fixed-asset investment and retail sales picked up and beat analysts’ estimates. Meantime, private indicators show upbeat sentiment in business confidence and increased factory activity continued in September.

"The pickup in industrial profit is driven by commodities prices and the property market boom, in line with recovering factory-gate prices, which will turn positive this year," said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. Improving profits signal companies are more able to repay debt, he said.

Economists have raised their forecasts for 2016 gross domestic product growth on increasing evidence the government’s fiscal support has helped successfully underpin the economy. They’ve also ratcheted back expectations for additional monetary stimulus as policy makers switch gears to reigning in surging home prices in some of China’s biggest cities.

Strong sales growth, rebounding prices and decreasing costs contributed to the profit surge, NBS said in a statement. Auto, steel and oil processing companies performed best, it said.

Demand is still weak at home and abroad, NBS said. The time it takes companies to get paid money they’re owed remains relatively long and the traditional manufacturing, especially those with excess capacity are still struggling, the agency said.

"Although August growth was strong, it’s largely because of a low base last year," NBS said in the statement. "The foundations to support sustained rapid industrial profit growth isn’t solid. There’s still a lot of work to be done to boost the upgrading of the real economy."

(Updates to add economist comment in third paragraph.)

To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net. To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeff Kearns

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