Profits of industrial enterprises fall in July

Profits of China's major industrial enterprises in July fell by the most this year after narrowing in June, underscoring the impact on corporate earnings of a still slowing economy and the need for policy easing to reduce the burdens of companies.

Industrial profits dropped 5.4 percent in July from a year ago to 366.8 billion yuan ($57.7 billion), the fourth consecutive monthly fall, data from the National Bureau of Statistics (NBS) Monday showed.

The figure compared with a 1.7 percent year-on-year drop in June, easing from a 5.3 percent decline in May.

Profits fell 2.7 percent from a year earlier to 2.68 trillion yuan in the first seven months, widening from a 2.2 percent decline in the first six months.

"The data suggested that the economy has still not bottomed out and there is no obvious sign of recovery," Tang Jianwei, a Shanghai-based macroeconomic analyst at Bank of Communications, told the Global Times.

Among the 41 industries being tracked by the NBS, 25 industries reported profit gains while 15 saw profits shrink in the first seven months, the data showed.

Profits of companies in ferrous metal smelting and rolling industry plummeted 60.8 percent while those of chemical raw materials and products dropped 21.3 percent during the same period. Petroleum refining, coking and nuclear fuel processing industries suffered losses.

"Affected by the real estate curbs, sectors closely related to infrastructure construction such as steel industries are badly hurt, and businesses in the downstream sectors are facing even greater pressure," Tang said.

Steel makers on average earned just 1.68 yuan in profit for each ton of steel they sold in the first seven months of the year, Wang Xiaoqi, vice director of the China Iron and Steel Association (CISA), said at a summit Thursday.

Wang also said 83 percent of China's steel firms recently surveyed by CISA have suffered losses this year.

"Companies' profit margins are squeezed by rising labor and materials costs as well as sluggish sales," Zhuang Jian, a senior economist with the Asian Development Bank, told the Global Times.

"We expect a renewed, strengthened push to turn around operating environment both externally and domestically. Measures supporting exports will likely include accelerated disbursement of export tax rebates and expansion of export credit insurance," Dariusz Kowalczyk, a senior economist at Hong Kong-based Crédit Agricole CIB, said in a research note sent to the Global Times Monday.

Domestically, a reserve requirement ratio (RRR) cut, more infrastructure investment, consumption incentives and other measures are likely, he said.

"Apart from monetary policy easing such as RRR and interest rate cuts, the government should focus more on fiscal policy easing to further reduce structural taxes and remove burdens on companies," Tang from Bank of Communications said.