Chinese economy improves while industrial profits drop at slower pace

09-28-2009 11:04

The Chinese economy recovers at a strong pace on the back of a lending boom in the first six months of this year and due to government procurement, while Chinese industrial businesses’ profits declined. In the period that ended August 31, net income fell 10.6% from the corresponding period of the previous year, reported the statistics bureau this Monday. Profits fell 22.9% during the first five months of 2009.

Chinese economy

The Asian Development Bank (ADB) raised its outlook regarding this year’s economic expansion as a result of increasing industrial output, real estate transactions and unprecedented care sales driving confidence. The Chinese administration warned on September 22 that the situation of the nation’s industry is still alarming, while the weak demand for Chinese products would not recover swiftly.
Sherman Chan, economist with Moody's Economy.com in Australia, commented: “The Chinese economy is improving quickly while the stable mainland has a positive influence on the worldwide recovery.”

Stability

In the eight months through August, sales climbed 1.6% to CNY 32.4 trillion, which relate to companies with a year-to-year sales of more than CNY 5 million in 39 industries, such as telecommunications, mining, chemicals, steel and electricity.
The Chinese administration targets on an economic expansion of 8% in order to increase employment and to create stability in the world’s third-biggest economy. Wen Jiabao, premier of the People's Republic of China, commented on September 10 that the country “cannot and will not” retrieve fiscal and monetary stimulus.

Improves faster

In the second quarter, the Chinese economy grew by 7.9% as a result of a CNY 4 trillion stimulus program and record lending, which helped exports to recover from the recession. The first quarter of 2009 showed that the gross domestic product climbed 6.1%, which is the weakest rise in almost 10 years.
The Asian Development Bank increased its outlook for China’s economic expansion in 2009 to 8.2%, while it previously forecasted an economic growth of 7%. Furthermore, it raised the outlook for 2010 from 8% to 8.9%.

Growth of 10%

Chen Dongqi, vice director of the National Development and Reform Commission Research Division, said on September 17 that the last quarter of this year could result in an economic growth of 10% or higher, due to stimulus spending, improving exports and domestic consumption.
Through the period that ended August 31, urban fixed-asset investment rose 33% in the yearly comparison, while the expansion in industrial output increased 12.3% in August.

Cars and SME’s

Vehicle sales rose 90% in August from the corresponding period of the previous year on the back of tax savings and subsidies, on which China became the largest market for new cars after the US. The Chinese automaker Geely Automobile posted a rise in profits of more than 50% to CNY 595.9 million in the first six months.
The Central People's Government announced this week further steps to shore small and medium enterprises (SME’s) that are affected by dropping profits, excess capacity, limited demand and the restrictions regarding lending. China’s State Council stated that the measures would consist of tax saving and stimulus spending.
“The prospects for SME’s are progressing, as small and medium enterprises until now have not been hit by the credit bust,” Chan commented.