Chinese industrial profits jump in August, reversing drop

(Bloomberg) — Chinese industrial profits surged after months of declines, signaling that national campaigns to tackle overcapacity and excessive competition are bearing fruit.

Industrial profits in August climbed 20.4% from a year earlier, the first increase in four months, according to data released Saturday by the National Bureau of Statistics. For the first eight months of the year, they climbed 0.9%, beating a Bloomberg Economics forecast for a 1.6% drop.

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Chinese factory deflation eased for the first time in six months in August amid a government campaign to reduce overcapacity across the economy. But a continued deceleration in industrial output growth may have offset any benefits to company bottom lines.

The increase in industrial profits in the first eight months was “driven by multiple factors including the effective implementation of macroeconomic policies, the deepening advancement of a unified national market, and the low base from the same period last year,” NBS analyst Yu Weining said in a separate statement.

The equipment manufacturing sector has been seeing profit growth across almost all industries, with railway, shipbuilding and aerospace companies gaining 37.3% in the first eight months, NBS data showed.

The steel industry returned to the black as rebounding demand and prices coupled with falling costs sent profits at raw material manufacturers up 22.1% on year during the January-August period, 10 percentage points faster than in the first seven months of the year, Yu added. Earnings of consumer product manufacturing companies also rebounded by 1.4%, from a 2.2% drop in first seven months.

The outlook for profits at Chinese factories, mines and utilities remains clouded by subdued domestic demand and uncertainty around US tariffs.

Chinese growth has been cooling into the third quarter. Infrastructure spending is losing steam and worsening a slowdown driven by a years-long property slump, likely further weakening demand for key industrial goods such as steel and cement.

—With assistance from Tian Ying.

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