Chinese industrial profits down, but private businesses prosper

Profits for Chinese major industrial companies fell 1.6 percent in the first four months from the same period last year, China's statistical authority said Sunday.

The statement said that in April alone, industrial profits dropped 2.2 percent to 407.6 billion yuan from the same period of last year.

State-owned and state-controlled enterprises saw their profits fall 9.9 percent from one year earlier to 457.8 billion yuan in the first four months, while private companies' profits grew 20.9 percent during the same period.

Chinese often report data as a running total and sometimes Western news outlets report the number as if it was the one-month year-over-year number they are accustomed to seeing in the West. This data release gives both: a 2.2% drop in April increases the 2012 loss to 1.6%, from the 1.45% loss in March. In short: the decline is accelerating.

On the plus side, private companies saw profits surge. It wasn't the case for exporters though, they broke out profits for Hong Kong and Taiwan owned firms, and those were down.

I remember around 2004 or 2005 Chinese media started crowing about SOE profits, but most of the SOEs are in commodity and industrial sectors that boomed during the 2000s all over the globe. This was not a sign of good management, but an upturn in the sectors. China increasingly relied on these firms for growth and capital was shoveled their way as part of the post-2008 stimulus. Much of that capital was funneled into real estate investment and non-core businesses. Thus, these firms could experience a double whammy as their core business deteriorates along with their speculative ventures.

The path forward is clear: shift the economy in favor of private business, which is the plan of incoming premier Li Keqiang. In the interim, things will be rocky.

Major Chinese industrial companies' profits drop 1.6 pct