China’s industrial profits rise to its highest in three years in 2016

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Profits for China’s major industrial firms rose the most in three years in 2016, mainly attributing to a construction boom, the National Bureau of Statistics (NBS) said Thursday.

Total profits of those major industrial companies stood at 6.88 trillion yuan (1 trillion US dollars) for the year, marking a strong profit growth of 8.5 percent from 2015, while industrial profits declined 2.3 percent year on year in 2015, according to a NBS statement.

Profits in December grew 2.3 percent from a year earlier to 844.4 billion yuan (122.8 billion US dollars), slowing sharply from a growth of 14.5 percent in November.

NBS said the profit slowdown in December was due to soaring raw material prices.

Workers of a large state-owned enterprise register mechanical and electrical equipment in Huaibei city, Anhui Province, China on June 29, 2012. /CFP Photo

China's producer prices surged the most in more than five years in December, bolstered by a months-long rally in prices of coal and raw materials.

Government efforts to force bloated "smokestack" industries to shut excess and inefficient capacity also helped feed the rally by reducing supply.

Earnings recovery remained uneven across the industrial sector. Coal miners and processors such as steel mills and oil refiners continued to see more profits gains than other firms.

In 2016, profits of major state-owned industrial enterprises increased 6.7 percent, and profits of major private companies rose 4.8 percent, while major foreign-invested companies posted strong growth of 12.1 percent in profits.

A construction site in Hangzhou city, Zhejiang Province. /CFP Photo

The NBS said a narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing contributed to the overall 2016 earnings turnaround.

But part of the reason for the strong numbers last year was simply due to a weak base of comparison from the previous year and the foundation for further improvement in the industrial sector was not stable, the stats bureau added.

"Average profit growth over the last two years has not kept up with output growth," NBS said in the statement. "An unreasonable demand structure, difficulties collecting funds and high costs are a drag on corporate profits."

NBS statistician He Ping said that China's economy faces a complicated domestic and global environment, and the foundation for industrial recovery is not solid.

Supply-side structural reform should be deepened, an industrial upgrading should continue, he added.