Cumulative profits from January to May laid a solid foundation for big industrial companies, says National Bureau of Statistics

China's big industrial companies are expected to see stable profit growth in coming months, after a double-digit, year-on-year increase in cumulative profit from January to May laid a solid foundation for the year.

The healthy rate of profit growth reflected in the latest data for the year stem mainly from producers' primary businesses, even as enterprises face rising costs and a slightly lower producer price index, a gauge measuring prices of goods at the factory gate, according to Gao Ming, an analyst with China Merchants Securities.

Industrial companies with annual sales of more than 20 million yuan ($2.9 million; 2.6 million euros; ￡2.3 million) posted 2.9 trillion yuan in profits in the first five months of 2017, up by 22.7 percent cumulatively year-on-year, according to the National Bureau of Statistics.

The high aggregated growth rate in the profit of industrial companies so far this year resulted from industrial upgrading and a rebound this year, combined with an extremely low base of growth in 2016.

In May alone, profits of major industrial companies rose by 16.7 percent year-on-year, up from 14 percent in April, data showed.

Gao says profits from companies' main businesses played a major role in overall profit growth.

Better investment returns also contributed, according to NBS statistician He Ping, who cited 32.5 percent year-on-year growth in May - 2.1 percentage points higher than in the first four months.

Favorable performance in the first five months laid a solid foundation for achieving the annual GDP growth target of around 6.5 percent, according to the NBS.

More coordinated efforts in implementing reforms in key areas will help the economy keep its growth momentum, according to Liang Hong, chief economist with China International Capital Corp.

The nationwide push to reduce debt and cut overcapacity is gradually bearing fruit in boosting industrial companies' profitability as corporate debt is cut, says Wang Qing, a senior analyst with Beijing-based Golden Credit Rating International Co.

"Efforts to cut overcapacity in the past two years have significantly speeded up the process of lowering corporate debt," says Wang. "We expect the structure of assets and liabilities of industrial enterprises to be further optimized and improved with more effort to stem asset bubbles and guide money into the nonfinancial sector."

Data from the Ministry of Finance shows the debt level of major enterprises was 56.1 percent at the end of May, down by 0.7 percentage points compared with the previous month.

"Concerns about a possible economic slowdown in the second half of this year might come from tightening supervision in the financial sector, but the negative impact will be rather limited," Gao says, with downward pressure balanced by the improvement of consumer demand and the expansion of the service sector.

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(China Daily European Weekly 06/30/2017 page14)