China: Industrial profit growth improves significantly in 2017 – Nomura

China’s industrial profit growth slowed for a third consecutive month, to 10.8% y-o-y in December, the lowest print of 2017 as full-year 2017 saw industrial profit growth of 21% y-o-y (2016: 6.7%), the highest in six years.

Key Quotes

“The improvement was largely across the board, but most significant at state-owned enterprises, which saw profit growth jump to 45.1% y-o-y in 2017 from single-digital growth in 2016.”

“Rising prices were a big driver of stronger profit growth given the surge in producer price index (PPI) inflation to 6.3% last year. Profits in the mining sector (with the highest PPI) grew 2.6x in 2017. Corporate leverage also improved on rising profits.”

“Despite the strong profit growth performance in 2017, we remain cautious on the outlook. The positive contribution from prices will fade as PPI inflation has peaked, and investment demand looks set to weaken as the property sector cools. We expect industrial profit growth in year-on-year terms to continue its recent moderation in the coming months.”