Strong upstream commodities rally helps state-owned sector contribute 23% of overall earnings
Profits in China’s industrial sector surged 31.5% during January and February, with the ruling Communist Party’s sprawling manufacturing business operations, propelled by a strong upstream commodities rally, responsible for half of a 234.3 billion yuan gain in earnings.
Industrial profits for the two-month period topped one trillion yuan for the first time in history, thanks to a 13.9% jump in overall industrial revenue to 17.4 trillion yuan (US$2.53 trillion) that outpaced a 13.3% increase in costs, the National Bureau of Statistics (NBS) revealed on Monday.
State-owned enterprises (SOEs) contributed 233.63 billion yuan in profits – twice as much as a year ago and 23% of overall industrial earnings so far this year, up from 13% in the first two months of 2016.
Private and foreign, as well as joint-stock companies, reported bottom line increases of between 15% to 34%. Together they account for the lion’s share of all industrial activity in China.
Notably, coal and oil exploration returned to the black after swimming in losses in the same period the year before, while earnings in the steelmaking industry grew by over 20 times, spurred by a vastly improved business outlook.
The data proves that the turnaround in the Producer Price Index (PPI) in the second half of 2016 was crucial for the upstream materials sector, where changes in the final selling price flow almost directly to the bottom line. PPI gained a further 7.3% during this January and February.
The NBS reported that the coal mining, ferrous metal smelting, petroleum exploration and refining, and chemical manufacturing sectors together accounted for an even more significant share of the latest profit gain than during December, albeit this should be seen as a recovery-type profit normalization.
As of end-February, the account receivable length stood at 41.3 days, down 1 day from a year earlier, which is the first decrease in recent years, the NBS noted.