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China Industrial Profits Increase at Slowest Pace in a Year

Weaker demand threatens to weigh on China's economic expansion.

Profit growth at industrial firms in China rose at the slowest pace in a year even as prices surged, underscoring how weaker demand threatens to weigh on the economic expansion.

Industrial profits rose 2.3% in December from a year earlier to 844.4 billion yuan (US$123 billion), down from a 14.5% increase in November, the statistics bureau said. Full-year earnings climbed 8.5% to 6.88 trillion yuan, reversing a 2.3% decline in 2015.

"Raw materials prices are rising, but producers weren’t able to pass it on to consumers, so they’re kind of squeezed," said Tommy Xie, an economist at OCBC Bank in Singapore. "If the economy continues to stabilize, there’s still room for profit growth, but the global environment, especially a more protectionist U.S. under Trump, will also pose uncertainty."

The slowdown underscores challenges faced by the nation’s producers, from heavy debt to risks of a property downturn to potential trade tensions. Policy makers also plan to cut excess industrial capacity and curb financial risks this year amid a growth deceleration.

Profit at state-owned companies rose 1.7% to 2.32 trillion yuan last year, according to a statement on Ministry of Finance’s website.

By Bloomberg News

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