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Analysts on reasons behind industrial profits growth

Reporter: Chen Tong 丨 CCTV.com

12-28-2016 00:17 BJT

Among all the sectors recorded in the NBS report, manufacturing outperformed both mining and power generation. Manufacturers saw a 13.7 percent jump in profits year-on-year from January to November.

Analysts are saying the improved industrial profitability is a result not only of capacity reduction, but also can be attributed to price rallies in commodities.

China's steel and coal makers have both completed their 2016 capacity reduction plans, and industrial firms have seen profit increases stemming from the government's capacity reduction subsidies.

Profits of state-owned firms, which saw several large mergers this year, have increased by 8.2 percent year-on-year, a greater increase than seen in private companies.

"The overcapacity cuts may not only have affected profit growth by reducing production, but have also helped manufacturers boost product quality and price," said Liu Xuezhi, senior analyst.

"That has improved the operational efficiency of these companies and also increased their profitability."

After continually declining for years, rebar prices on the Shanghai Futures Exchange saw a rebound at the beginning of this year. Iron ore prices have also gradually increased during the year.

Due to these price raises, the Producer Price Index that measures prices of finished industrial goods gained 3.3 percent year-on-year in November.

Analysts say the PPI recovery will continue in the first quarter next year, but may not last beyond that.

"Firstly, the recent increase in price of raw materials will encourage some corporates to restock next year," said Veronica Gu, associate, DBS China.

"Secondly, the expectation of fiscal stimulus of the U.S. has pushed commodity price higher and that will in turn drive price of fuel and manufactured goods up. But as supply of coal and steel picked up, and the growth of real estate and automobiles slow down, we expect price of raw materials, maybe except oil and agricultural products, to go down when we go through the mid of 2017."

China has imposed heavy restrictions to ease the housing bubble this year. The automobile industry, which saw a 13 percent profit increase in the first eleven months, also expects to slow its development pace next year as the purchase tax rebate on smaller vehicles will be rescinded next year.

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