China's slowing industrial profits show rising debt hampering economy

Thu Oct 27, 2016 1:19am EDT
 
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BEIJING (Reuters) - Profit growth in China's industrial firms slowed sharply as some key manufacturing sectors stumbled on weak activity and rising debt, suggesting the world's second-biggest economy remains underpowered despite emerging signs of stability.

The September data from National Bureau of Statistics (NBS) underlined the daunting task facing policy makers as the nation's vast manufacturing industry grapples with slack demand, overcapacity and ballooning debt.

Industrial sector profits last month rose 7.7 percent to 577.1 billion yuan, slowing markedly after surging 19.5 percent in August, NBS figures released on its website showed on Thursday.

Earnings in industries such as electronics, steel and electricity were hit by a significant drop in growth, He Ping, a NBS official said in a note accompanying the data.

"Although industrial profits have got back on track with more stable growth, unfavorable factors still exist," He said, noting weak demand at both home and aboard, and delayed payments put a strain on firms' cash flow.

The official also cautioned about rising debt levels in the coal and steel sectors, stressing the importance of controlling debt risks as capacity cuts and structural reforms get implemented.

China's debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years.

Recent data showed some signs of stability, with annual economic growth of 6.7 percent in the third quarter matching the previous quarter, as increased government spending and a property boom offset stubbornly weak exports.

But the profits data suggest China's economy continues to face a host of challenges as authorities try to wean businesses off cheap credit-fueled growth, temper a surge in home prices and curb rising debt levels and shadow banking activity.   Continued...

 
Pedestrians cast their shadows  on a wall at a construction site in Beijing December 12, 2014.  REUTERS/Kim Kyung-Hoon/File Photo