Sharp increase in factory profit

Updated: 2012-11-28 00:54

By Chen Jia in Beijing and Yu Ran in Shanghai (China Daily)

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Investment and rising exports drive rebound, report says

Factory profit rose at the fastest pace in 10 months in October, driven by increasing investment projects at home and export orders.

The National Bureau of Statistics said on Tuesday that large companies (with annual business worth more than 20 million yuan) reported profits of 500.1 billion yuan ($80 billion) in October, a jump of 20.5 percent year-on-year.

In September, the figure was just 7.8 percent, following a minus 6.2 percent in August.

The five months to September saw consecutive losses.

October figures were responsible for a marginal 0.5 percent profit for the 10 months, the bureau reported.

The October figures are a "positive sign," said Liu Yuanchun, deputy dean of the Renmin University of China's School of Economics. "They could send a signal to the government that there is no need for further stimulus, at least in the short term."

Major adjustments in macroeconomic policies are impractical before the annual economic work conference in December, Liu said.

Economic reform is expected to see fresh progress under the new leadership team, Liu said.

October's data are "better than expected," and will boost confidence to speed up investment and production in the coming months, he said.

GDP growth will be 7.9 percent year-on-year in the last three months of the year, he said.

Wang Tao, chief China economist at UBS AG, said that investment in manufacturing might show moderate growth through 2013, while investment in infrastructure could experience higher growth. Wang forecast that China's GDP growth might be 7.6 percent this year and around 8 percent in 2013.

Indicators began to show that the world's second-largest economy picked up the pace in September. In October, exports increased 11.7 percent year-on-year, 1.7 percentage points higher than September. The HSBC Purchasing Managers' Index was above 50 in November for the first time in 13 months. A reading above 50 indicates expansion.

"The recovery in industrial activity appears to be gaining traction, supported by policy easing and stabilization in the housing market," said Zhu Haibin, the chief China economist and head of Greater China Economic Research at JP Morgan. "External demand has also improved in the near term."

Business owners also reported positive signs. Zhou Mingwang, owner of Yiwu Mingwang Jewelry, a small export company in Zhejiang province, said overseas orders have slowly come back since August for Christmas.

Government policies to help small and medium-sized enterprises are also coming through, he added.

Huang Yi, manager of Shanghai Qinfen Trading, a vehicle parts exporter, said although the situation is still "quite miserable" for many manufacturing companies, he believes that the business environment will change for the better soon.

Sunil Garg, the head of Asia Pacific Equity Research at JP Morgan, said that the steady rise in optimism for earnings estimates is notable, "as is the fact that consumption demand sentiment is stabilizing".

From January to October this year, 27 of the 41 sectors covered by the bureau's data showed net revenue increases compared with a year earlier. The gains in the electricity and heating companies surged 57.5 percent and the growth was 9 percent in the auto industry.

In the meantime, 13 industries reported a drop in profits, including oil and gas exploration companies with earnings decreasing 3.2 percent. The petrochemicals, coking and nuclear-fuel processing industries showed losses in the first 10 months.

Contact the writers at chenjia1@chinadaily.com.cn and yuran@chinadaily.com.cn

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