Costs hit corporate profit growth in May

A worker helps assemble a car at an auto plant in Qingzhou, Shandong province. Vehicle manufacturing recorded 29.6 percent profit growth so far this year through May, according to official statistics. Provided to China Daily

Profit growth at major Chinese industrial companies decelerated in May because of sluggish business, higher inventories and rapidly increasing costs, said analysts.

The year-on-year growth rate of 9.8 percent for the first five months was down slightly from the 10 percent pace for the first four months, the National Bureau of Statistics said on Friday.

He Ping, an analyst at the NBS, said slower growth in the electronics, coal and general equipment industries depressed the overall rate.

In May, revenues from industrial companies' core businesses rose 6.9 percent year-on-year, down 2.8 percentage points from April.

Hao Daming, an analyst with Huarong Securities Co Ltd, said the slower growth was partly caused by rising interest expenses and other financial costs.

Interest expenses increased 10.4 percent and financial costs soared 17.4 percent in the first five months, compared with 9.5 percent and 15.8 percent for the first four months.

"The rising costs have squeezed companies' profits. They also reflected companies' difficulty in raising capital," Hao said.

Major companies' finished goods inventory rose 12.5 percent to 3.5 trillion yuan ($564 billion) in May, which ate into their profits.

In May, profits of industrial companies rose 8.9 percent year-on-year to 512.7 billion yuan, down from 9.6 percent in April.

Profits of State-owned enterprises increased 3.4 percent from January to May, while profits for private companies rose 12.9 percent.

Among the 41 industries surveyed, 32 registered profit growth in the first five months, while eight saw their profits decline.

The coal mining and processing industries recorded a 43.9 percent profit decline in the first five months.

Five industries - including vehicle manufacturing, electricity and heating power production and supply - accounted for 77 percent of the profit growth.

Oil refining, coking and nuclear fuel processing recorded 49.3 percent profit growth in the first five months, the highest among all industries. Vehicle manufacturing recorded 29.6 percent profit growth.

Hao said the preliminary reading of the HSBC Holdings Plc and Markit Economics Purchasing Managers Index indicates that manufacturing industries have rebounded and major economic indicators for June will be more optimistic.

Xu Sitao, chief representative of the Economist Group in China, also said an improved reading for the manufacturing PMI in May suggested that the slowdown abated slightly in the second quarter.

To boost economic growth, the government has recently launched modest stimulus measures including tax cuts, accelerating infrastructure spending and targeted reserve requirement ratio cuts to boost funding for smaller companies and agriculture.

"China's economy should grow more than 7 percent this year, but activity has generally been lackluster in 2014, with the property and shadow banking sectors increasing the risk of a more pronounced slowdown," Xu said.