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China's industrial profits surge

Profits for China's industrial powerhouses surged the most in nearly six years in September as a government crackdown on air pollution sparked fears of winter supply shortages and sent prices of finished goods like steel and copper sharply higher.

Sustained earnings growth will give China's policymakers more room to restructure bloated and often inefficient state-owned enterprises, which dominate the industrial landscape and account for a hefty portion of the country's corporate debt.

Industrial profits in September rose 27.7 per cent from a year earlier to 662.18 billion yuan ($99.46 billion), accelerating from a 24 per cent jump in August, the National Bureau of Statistics said on its website on Friday. That was the sharpest gain since December 2011, when profits grew 31.5 per cent.

For the first nine months of the year, the firms notched up profits of 5.58 trillion yuan, a 22.8 per cent jump from the same period last year and up a touch from 21.6 per cent growth in January-August.

While a year-long construction boom is starting to show signs of fatigue, still-robust industrial earnings will be good news for the country's leaders who gathered for a critical Communist Party Congress over the past week to set political and economic priorities for the next five years.

President Xi Jinping opened the twice-a-decade gathering, stressing the need to move from high-speed to high-quality growth. While reiterating a commitment to deepening market reforms, he also said the government would strengthen state firms, raising questions about whether the sector would see significant and likely painful reforms.

Market watchers had expected solid September earnings growth after the producer price index rose by a sharper-than-expected 6.9 per cent from a year earlier. A year-long construction boom has helped boost prices for building materials from steel and glass to copper pipes, giving China's long-ailing industrial sector its best profits in years. But the world's top steel producer is ramping up efforts to reduce notorious winter smog as it urges major northern China industrial cities to slash steel output well ahead of the official winter heating season.

While that has spurred fears of shortages and pushed steel prices higher, the environmental clampdown could have the opposite impact on demand for steelmaking raw materials, such as iron ore and coking coal.

The country's steel output dropped in September from a record high in August as mills cut production in line with Beijing's campaign for clearer skies, pointing to further drops as winter curbs set in.

Sources : Khaleej Times

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