China June industrial profits rise but investment challenges grow

BEIJING (Reuters) - Profits earned by China's industrial firms grew at their fastest pace in three months in June, indicating government spending is supporting the corporate sector though uneven growth and soft investment pose headwinds.

Profits in June rose 5.1 percent to 616.31 billion yuan ($92.40 billion), the National Bureau of Statistics (NBS) said on Wednesday, the fastest growth since March.

"The bottom line is that the worst has gone in terms of industrial profits," said Raymond Yeung, an economist at ANZ in Hong Kong.

He said the improvement in China's upstream prices, as seen in the recent moderation in producer price index declines, points to a pickup in profits in the second half of the year.

Total profits for the first half stood at 3.0 trillion yuan, up 6.2 percent from the same period a year ago and compared with a 6.4 percent gain in the January to May period.

"June profits accelerated from May but unfavorable conditions for companies continue to exist," NBS official He Ping said in a statement accompanying the data.

He added increased profits were spread unevenly across industries, with profit gains focused on just a few industries including electronics, steel and oil processing.

Profits in the mining sector fell 83.6 percent in the first half from a year earlier.

Firms faced further difficulties accessing capital in June, he added.

The data, which covers large enterprises with annual revenues of at least 20 million yuan, come as investment cools and growth in home prices eased.

China's economy expanded 6.7 percent in the second quarter, but the slightly better than estimated growth rate comes amid a dangerous rise in both debt costs and inefficient loans to state firms. Private investment remains weak, with high funding costs becoming a major obstacle for private enterprises, according to the state planner.

Across several industrial sectors, lukewarm demand and a campaign aimed at reducing surplus has taken a toll on some of the largest state-owned firms.

Sinopec [600028.SS][0386.HK], the country's largest refiner, last week said crude oil production fell 11.4 percent on year. Meanwhile, China National Building Material co. [3323.HK] said it expects a substantial drop in profits in the first half due to a fall in cement prices.

Liabilities at China's industrial firms rose 4.6 percent in June from the same point last year, easing from 4.9 percent growth at the end of May.

On Monday, a senior official from the state planner said China should increase government investment and not compete with private investment.

Profits at China's state firms fell 8.5 percent in the first half, the Ministry of Finance said on Monday.

(Reporting by Beijing Monitoring Desk and Sue-Lin Wong; Editing by Sam Holmes)

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