China: Industrial profits turned positive supported by infrastructure – ING

Sandeep Kanihama FXStreet Contributor

Iris Pang, economist at ING, notes that China’s industrial profits amounted to CNY512.67 billion in July, up 2.6%YoY in July from a contraction of 3.1%YoY in June.

Key Quotes

“The most prominent profit contribution to this growth was support from infrastructure projects, specifically from the construction of railways, which pushes up profits in the mining and electrical products sectors. Electric products enjoyed profit growth of 30.8%YoY in July. Well up from 4.2%YoY in June. “

“The negative impact of the trade war was masked by supportive fiscal stimulus in the form of railway construction. Trade-related sectors continued to suffer from shrinking profits.”

“The average payback period for account receivable was 54.2 days, an increase of 1.1 days over the same period last year.”

“We believe that most private enterprises suffer from long account receivable cycles. They may be the low-end subcontractors of infrastructure projects. We worry that they may be the last to receive payments from their construction works. “

“It is, therefore, possible that even though infrastructure projects help to support the economy as a whole, the government is expected to support the lower-end sub-contractors to avoid any chance of a series of defaults of small private firms.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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