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July 28, 2015

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China’s industrial profits falls 0.3% in June

PROFITS of China’s industrial companies dropped again in June after a brief rebound in the past two months, denting hopes of an economic stabilization.

Net earnings of manufacturing companies amounted to 588.5 billion yuan (US$95 billion) last month, down 0.3 percent from a year earlier, the National Bureau of Statistics said yesterday.

That meant a return to contraction from the expansion of 0.6 percent in May and an increase of 2.6 percent in April.

He Ping, a researcher at the bureau, said profit growth remained “largely stable” and three main factors led to the decrease in June.

“The factory-gate prices fell notably last month, which was a direct cause of the drop,” He said. “Production costs and a higher comparative base also contributed to the drop.”

Zhu Haibin, chief economist at JPMorgan, said the data raised the concern about the sustainability of growth recovery in the rest of the year.

“China’s economic growth stabilized in the second quarter, but the improvement in the headline figures seemed to hide the structural challenges faced by the economy,” Zhu said.

“In particular, the growth recovery in the second quarter was mainly driven by the service sector, while the manufacturing growth during January and June continued to trend downward.”

China’s economic performance surprised the market on the upside by rendering a 7 percent increase in the second quarter, versus the previous market expectation of a 6.8-percent rise that was below the full-year target of 7 percent.

Meanwhile, trade, industrial production and retail sales all improved in June, while the housing market also rebounded, giving hope of a long-awaited recovery in the world’s second-largest economy.

But a cooling manufacturing sector was not coming out of blue.

The Caixin Flash China General Manufacturing Purchasing Managers’ Index, the earliest available indicator of China’s industrial sector that was renamed from the HSBC PMI, retreated to 48.2 in July from the final reading of 49.4 in June.

It was a 15-month low and pointed at contracting activities for the fifth consecutive month.

The official Purchasing Managers’ Index, a similar gauge compiled by the statistics bureau and slated toward state-owned manufacturers, landed at 50.2 in June, the same as in May.

“The data indicated that the foundation for the economic recovery is not stable and the manufacturing sector is still in difficulties,” Qu Hongbin, chief economist for China at HSBC, said last week.




 

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