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China's industrial profit growth slows as factory-gate deflation weighs

·2-min read
FILE PHOTO: Worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang
FILE PHOTO: Worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang

BEIJING (Reuters) - Profits at China's industrial firms rose for a fifth straight month in September, but at a slower pace as factory-gate deflation and rising raw materials costs undercut a recovery in the manufacturing sector.

China's economic rebound has been gaining momentum following the sharp COVID-19-driven downturn thanks to strong exports, pent-up demand and government stimulus, but slower-than-expected third quarter gross domestic product growth highlighted pockets of weakness for one of the few drivers of global demand.

Profits at Chinese industrial firms in September rose 10.1% year-on-year to 646.43 billion yuan ($96.34 billion), National Bureau of Statistics (NBS) data showed on Tuesday.

That marked the fifth month of profit growth albeit slower than a 19.1% increase in August.

Zhu Hong, a senior statistician at the NBS, attributed the slower growth in September to deepening declines in factory-gate prices, rising losses from asset depreciation and increasing raw material costs for auto and electronics sectors.

Factory gate prices, a key barometer of industrial demand, fell at a faster-than-expected pace in September, and consumer inflation slowed to its weakest in 19 months.

"Although industrial profits continued to recover steadily in the first three quarters, cumulative operating income and profit growth have yet to turn positive, while growth rates of accounts receivable and inventory of finished goods are still high," Zhu said.

"The foundation for continued improvements in corporate profits still needs to be consolidated."

For January-September, industrial firms' profits fell 2.4% on an annual basis to 4.37 trillion yuan, with the downturn easing from a 4.4% decrease in the first eight months.

Auto manufacturing, non-ferrous metal smelting and processing and ferrous metal smelting and processing industries contributed to the bulk of the profit increases in the first nine months.

Major mining firms including Zijin Mining Group <601899.SS> and Chifeng Jilong Gold Mining <600988.SS> reported stronger net profits for the nine-month period.

Profit margins at big industrial firms rose 13.8% in the third quarter from a year ago, compared with a 4.0% fall in the second quarter, while earnings at small industrial firms rose 15.8% in the third quarter, NBS data showed.

The industrial profit data covers large firms with annual revenue over 20 million yuan from their main operations.

(Reporting by Stella Qiu and Ryan Woo; Additional reporting by Roxanne Liu; Editing by Shri Navaratnam)