July industrial profit rebounds

The profit growth of China's major industrial enterprises rebounded in July, official data showed Tuesday, strengthening analysts' views that the country's economy is stabilizing.

Domestic industrial firms with annual revenues of more than 20 million yuan ($3.26 million) saw their combined profits rise by 11.6 percent year-on-year in July, quickening from the 6.3 percent rate recorded in June, the National Bureau of Statistics (NBS) said in a statement.

In the first seven months of this year, the profits of industrial firms rose by 11.1 percent year-on-year, unchanged from that of the January-to-June period, according to the NBS.

Tuesday's data, together with a batch of economic indicators for July ranging from industrial output to exports, all showed that the world's second-largest economy appears to be stabilizing after a first-half slowdown, analysts said.

"Industrial profit is a lagging indicator, so its rebound in July has strengthened our views that China's economy is stabilizing," Zhou Jingtong, a senior analyst at the Bank of China, told the Global Times Tuesday.

The rise in industrial profits in July was mainly based on four industries - power generation and supply, telecoms, petroleum processing and autos - He Ping, an official with the NBS, said in a separate statement released by the bureau.

He noted that, in general, industrial enterprises' profitability was still low, because of rising labor costs and high raw material prices.

"Three of the four industries mentioned by He are dominated by big State-owned companies, which always benefit earlier and more from government policy support compared with their private counterparts," Zhou said.

The power industry reported a growth in profit of 73.5 percent year-on-year in the first seven months of this year, and Zhou said this was partly due to difficulties for the coal mining industry, which posted a 43.8 percent year-on-year profit slump during the period, the worst among a total of 36 industries surveyed by the NBS.

"Power plants have benefited from falling coal prices, which account for nearly 70 percent of their production costs," he said.

Although overcapacity has weighed on many domestic industries including coal, steel and cement, the coal industry has been hit hardest, Zeng Hao, an analyst at industry portal sxcoal.com, told the Global Times Tuesday.

"Local governments' support for local miners has hurt central authorities' efforts to curb overcapacity, and the domestic market has also been impacted by cheap imported coal," Zeng said.

Overcapacity will continue to weigh on the coal industry's profits in the rest of this year, Zeng noted.

"State-owned coal miners usually set up their annual output goals at the beginning of the year. Given the sluggish market this year, they may lower their output goals for next year," he said.