Large-scale Enterprise Profit Growth Eases for Jan-July Period As Deleveraging Continues


Profit growth of China’s large-scale enterprises for the January-July period edged lower compared to the first six months of the year, while levels of leverage amongst state-owned enterprises saw a slight decline.

Data released by China’s National Bureau of Statistics over the weekend indicates that the profits of enterprises above designated size for the first seven months of 2017 saw year-on-year growth of 21.2%, for a slide of 0.8 percentage points compared to the first six months.

This marks the first such decline in cumulative growth rates in five consecutive months.

July profits saw year-on-year growth of 16.5%, yet eased 2.6 percentage points compared to the preceding month.

There was marked divergence in the profit growth of state-owned and non-state-owned enterprises, with the former seeing YoY growth of 34.2% in July, as well as year-on-year decline in their debt ratios of 0.5 percentage points.

According to He Ping, the head of NBS’s industrial department, the slowdown in July growth was primarily due to non-economic factors, chief amongst them extremely hot weather that compelled some companies to suspend production.

Li Huiyong, chief economist of Shenwan Hongyuan Securities, said to Shanghai Securities Journal that the divergence in the performance of state-owned and non-state owned enterprises was mainly due to a marked improvement in the results for the oil refinement, coal and steel industries.

“During the process of supply side reform, resources are increasingly being concentrated amongst leading state-owned enterprises that enjoy an advantageous position,” he said.

Li also said that efforts by the central government to deleverage the Chinese economy are proving effective, with NBS data indicating that during the January-July period enterprises above designated size saw a slide in their debt-asset ratios of 0.7 percentage points to 55.8%.

State-owned enterprises saw a decrease of 0.5 percentage points across the same period to 61.1%.

Domestic analysts expect corporate debt reduction to continue in earnest, especially for state-owned enterprises, with both Xi Jinping and the State Council recently pointing to deleveraging as the “priority of priorities.”

Industrial enterprise profits expected to slide in H2

Zhu Jianfang, chief economist of CITIC Securities, expects profit growth to continue to decline amongst large-scale Chinese industrial enterprises in the second half, due to the absence of the low baseline that helped to boost first half growth, as well as a decline in PPI gains.

Zhu said to Shanghai Securities Journal that he¬†expects industrial enterprise profit growth to remain between 8% and 12% over the next six months to full year, and¬†China’s GDP growth to remain between 6.5% and 7% for 2017.

According to Zhu the dilemma of Chinese industrial overcapacity is beginning to see some initial improvement.