China industrial firms' profits jump, amid higher financing costs



Earnings for China's industrial firms surged 19.1 percent higher in June than the same time last year, a sign economic momentum remains solid even as rising borrowing costs have raised concerns.

Profits in June rose to 727.78 billion yuan (107.83 billion US dollars), the National Bureau of Statistics (NBS) said on its website on Thursday.

The robust growth of industrial earnings in June was in part driven by continued appetite for iron ore and other commodities, whose prices have recovered modestly after taking a hit since March.

Chinese worker packs steel rolls in a steel factory in Tangshan, Hebei Province, on May 12, 2016.

Statistics bureau official He Ping said in a statement accompanying the data that accelerated profit growth in steel, auto and electronics sectors helped to boost overall earnings.

"Another issue that requires close monitoring is the rising financing costs for companies," He added.

Chinese policymakers launched a flurry of regulatory measures early this year to tackle financial risks from a rapid build-up in debt.

That has raised borrowing rates, a headwind for businesses, particularly those struggling to reduce their debt servicing costs.

With recent data showing the economy holding up better than expected, most analysts expect the regulatory restrictions to remain in place through this year.

Chinese policymakers have leaned on property investment and infrastructure spending, including their plan to build a modern "Silk Road" trading route, helping fuel a building boom that has boosted demand and prices for materials from steel to cement.

China's June producer price inflation remained well off highs seen earlier this year, amid lingering oversupply issues in the steel sector.

With producer price inflation having peaked, profitability and new investment are seen tapering off this year, although strong exports and investment returns have helped industrial firms to weather a tightening in monetary conditions.

China's economy grew a faster-than-expected 6.9 percent in the second quarter, matching the first quarter's pace, thanks to solid exports, industrial production and consumption.

However, some moderation in growth is expected later this year as policymakers' efforts to rein in property and debt risks weigh on activity.

Industrial companies' liabilities rose 6.4 percent year-on-year as of end-June, the statistics bureau said.

Profits at China's state-owned firms were up 45.8 percent at 805.5 billion yuan in January-June period, compared with a 53.3 percent rise in the first five months.