Chinese profit growth slows

 

BEIJING – The profit growth of Chinese industrial companies has slowed after the government tightened credit to curb inflation and prevent asset bubbles.

Net income rose 27.9 percent in the first five months from a year earlier to 1.92 trillion yuan ($297 billion), the National Bureau of Statistics said on its website on Monday. That compares with a 29.7 percent gain for January-through-April.

This year, Chinese businesses face higher labor and commodity costs, weakness in export orders, and moderating economic growth after four interest-rate increases since September. Bank of America Merrill Lynch said on June 24 that the government will boost borrowing costs only once more this year as officials steer the economy toward a “soft landing”.

“Profit growth has generally seen a modest slowdown due to a continuous rise in raw-material and labor prices as well as corporate financing costs,” said Lu Zhengwei, an economist at Industrial Bank Co in Shanghai, said before Monday’s release.

Monday’s data cover companies with annual sales of at least 20 million yuan.

The central bank raised reserve requirements to a record 21.5 percent for the biggest lenders after the economy expanded 9.7 percent in the first quarter. The benchmark one-year lending rate is 6.31 percent, 1 percentage point higher than a year ago.

Buffett’s carmaker 

Monetary tightening and fluctuations in interest rates “will have a direct impact on our interest expenses and profitability”, said BYD Co, the Chinese car and battery maker backed by US billionaire Warren Buffett, in a prospectus issued this month for a share sale in Shenzhen.

The benchmark Shanghai Composite Index rallied the most in four months on June 24 after Premier Wen Jiabao said efforts to stem inflation have worked. Consumer prices jumped 5.5 percent in May from a year earlier, the most since 2008, while producer prices climbed 6.8 percent. Commodity costs have climbed 24 percent in a year.

“The overall price level is within a controllable range and is expected to drop steadily,” Wen wrote in the Financial Times.

Manufacturers’ output growth stalled this month and export orders dropped, according to a preliminary reading of a purchasing managers’ index published by HSBC Holdings Plc and Markit Economics.

Bloomberg News

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