China’s June industrial profit growth eases as production slows

BEIJING (Reuters) – Profit growth for China’s industrial firms eased in June from the previous month, data showed on Friday, as factory production slowed amid the worsening trade U.S. dispute and Beijing’s efforts to cut pollution and debt.

Industrial profits rose 20 percent to 658.29 billion yuan ($96.69 billion) in June, according to data published by the National Bureau of Statistics (NBS) on Friday, compared with a 21.1 percent rise in May.

NBS said in a separate statement on the data rising prices have cushioned firms’ profits even as industrial production slowed in June. It did not provide separate reasons for the slower profit growth in the month.

Steel, building materials and oil extraction sectors were key drivers behind profit growth in the first half of the year, it added. But profit growth in textile, non-ferrous metal smelting and processing, and telecommunications and electronic equipment manufacturing profits fell during the same period from a year earlier.

For the first half of the year, industrial firms’ profit grew 17.2 percent from a year earlier to 3.39 trillion yuan, accelerating from a 16.5 percent rise for January-May.

China’s economic growth slowed in the April-June period from the previous quarter while June’s industrial output growth slumped to a four-year low, raising concerns about the outlook for the world’s second-largest economy amid growing signs of stress.

Beijing’s ongoing campaign to cut debt and emissions have driven up borrowing costs and curbed production for some key industries, while threats of further tariffs on Chinese goods from Washington add to the headwinds for the second quarter even as Beijing insists the country’s economic fundamentals are sound.

China’s central bank in June cut the reserve requirement ratio (RRR) for the third time this year and has pumped more money into financial markets. Policymakers have so far ruled out the odds of a major stimulus package but have vowed to take necessary fiscal and monetary steps to support growth while urging banks to ensure adequate liquidity for smaller firms.

The country’s industrial firms have benefited over the past two years from hot property and infrastructure construction markets, which boosted demand for building materials such as steel bars and cement. New home prices’ growth on monthly terms accelerated to a near two-year high in June, suggesting continued momentum despite recent government curbs.

However, there are challenges for producers with growth in fixed-asset investment hitting a record low in the first half of this year a war against pollution. Raw materials cost also rose at a faster clip than the producer price index in June, suggesting possible margin pressures.

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