Industrial profits up in Sept. rebound

Profits rebounded for China's major industrial enterprises in September after five straight months of decline, the latest indicator that the downturn in the world's second largest economy may be bottoming out, according to figures released over the weekend by the National Bureau of Statistics.

Profits rose 7.8 percent in September from a year earlier to 464.3 billion yuan ($74.13 billion), the bureau announced. In August, industrial profits slumped 6.2 percent from the previous year.

From January to September, profits dropped 1.8 percent year-on-year to 3.52 trillion yuan, compared to a 3.1 percent drop during the first eight months, said the statement.

The monthly indicator of the profits of major industrial enterprises only includes those with more than 20 million yuan in annual revenue.

The figures are the latest to boost market sentiment by suggesting that a slowdown in China's economy is about to turn around.

"The rebound in industrial profits (in September) indicates that activity in the country's industrial sector is set to recover momentum during the last quarter, offering more signs of bottoming out in the economy," Tang Jianwei, senior macroeconomic analyst at Bank of Communications in Shanghai, told the Global Times on Sunday.

The country posted 7.4 percent growth in its gross domestic product (GDP) in the third quarter, sliding to its lowest level in more than three years, the statistics bureau said earlier in October. But countering that bad news, September data showed an acceleration in growth in industrial production, fixed-assets investment and retail sales, leading the market to believe that the slowdown has hit the bottom of a trough.

A UBS AG analyst says China's economy actually saw a slight rebound during the past quarter. Quarter-to-quarter growth rose to roughly 7.6 percent in the third quarter from 6-7 percent in the first half, although the year-on-year GDP growth rate continued a downward trend, Wang Tao, chief China economist with UBS AG, said in a research note sent to the Global Times on Sunday.

The economy is forecast to see a mild cyclical recovery in upcoming quarters, buoyed by factors that include a solid recovery expected in the US economy that will boost China's exports, and a moderate revitalization in the property sector, according to Wang.

The HSBC flash purchasing managers' index released last Wednesday, the earliest available indicator of activity in the country's vast manufacturing sector, also rose further in October to 49.1 from the previous months' reading of 47.9, pointing to a more positive economic outlook.

While the rebound in profits of the industrial sector as a whole is greeted by sighs of relief, a continued decline in profits of State-owned enterprises (SOEs) has economists calling for more government action to promote an uplift in the economy's efficiency that is believed to have been weighed down by the SOE sector.

"The rebound in the September reading is partly driven by recent government investments that serve to improve business performance in the SOE sector, however, the SOEs continue to trail the vibrant private sector in terms of reaping profits," Lu Zhengwei, the Shanghai-based chief economist at Industrial Bank Co, told the Global Times on Sunday.

"The government should further reform of SOEs, breaking their monopoly over goods and services that could also be provided by private firms," Lu urged.

Profits of the country's SOEs posted a drop of 11.8 percent in the first nine months compared to the previous year, according to the bureau.

In comparison, major private enterprises continued to post growth in profits, rising to 15.6 percent in the first nine months.