Corporate profits, cash flow to remain positive

Fitch Ratings said in a report that the profit growth of large Chinese non-financial companies will remain positive in 2012 and 2013, and is likely to outperform the Chinese economy on an overall basis.

Fitch expects the average credit profile of its portfolio of 40 Chinese corporates to improve by late 2012, and believes that the positive trend will likely continue into 2013.

The ratings agency expects 23 Chinese corporates in its portfolio to show an improvement in funds from operations due to ongoing revenue growth and stable margins.

For the remaining 17 corporates — which include some major State-owned entities — the agency expects a slight deterioration in leverage levels due to high capital expenditure.

Fitch expects cash flow growth in its Chinese portfolio to remain positive but slow to, on average, 10 percent in 2012 and 7 percent and 2013, after hitting 19 percent in 2011.

However, high capital expenditure levels are likely to restrict the average corporate from generating positive cash flow in 2012 and 2013.

Fitch's portfolio does not fully represent China on a macro basis, as it focuses on the largest and strongest corporates. The economic slowdown in China will likely hit companies in the middle and lower tiers more severely.

China's overall industrial profits fell 1.8 percent year-on-year in the January to September period, underlining the possibility of negative growth in 2012.