Corporate incomes jump as China trims overcapacity

First-quarter profits at China’s publicly traded companies rise 21%

Chinese industrial firms, including coal mining companies and steelmakers, led earnings growth in the first quarter of the year | Frame China/Shutterstock

Mainland China-listed companies maintained fast earnings growth in the first quarter, as a government-led drive to cut excessive capacity continued to bolster profitability in industries from coal to commodities.

Profits for companies trading on the Shanghai and Shenzhen stock exchanges increased 21% from a year earlier, compared with a growth of 24% a quarter earlier, according to data from brokerage Industrial Securities.

Upstream industries including coal, petrochemical and commodity companies led the earnings growth with at least 300% increases, while profit increases for smaller companies weakened, the data showed.

Upstream resource company earnings recovered as top policy-makers succeed in their moves – also known as the “supply-side reform” – to eliminate unneeded capacity ranging from commodities to steel, ending an almost five-year deflation in industrial prices.

Industrial companies including coal and steelmakers even raised prices as an economic pickup, mainly driven by a booming property market, boosted demand for their products.

“[The earnings growth] is mainly due to a remarkable improvement in fundamentals on the supply-side reform, and the effect of earlier low bases,” said a report by analysts led by Wang Delun at Industrial Securities.

Coal producers led the earnings growth in the first three months of the year among all industries, with a jump of 566% from a year ago, according to the brokerage.

The sector was followed by petrochemical companies and steelmakers, with growth rates of 458% and 396% respectively it said.

Shanxi Xishan Coal and Electricity Power’s earnings for the first quarter surged 856% on rising demand for coking coal used to make steel, while  Hesteel’s profit jumped more than fourfold in the period on rising prices of the alloy.

Chinese publicly traded companies are required to release first-quarter earnings reports by the end of April.

Still, Citic Securities, the nation’s biggest listed brokerage, said earnings growth in Chinese listed companies may have already peaked in the first quarter, on signs of weakness in prices. Growth in producer prices slowed in March after those prices rose at their fastest pace since 2008 a month earlier.

First-quarter earnings growth for ChiNext-listed companies, largely small-caps, slowed for a second quarter to 28%, as they conducted fewer buyouts amid more stringent regulatory rules, according to Industrial Securities.

The securities regulator tightened its approval of asset purchases by ChiNext companies last year to protect small investors, as the prices of target companies or assets were often found to be overstated and the stock prices were manipulated on insider trading.