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Profits in China’s industrial market strengthened during the period of January to February, but slowed from the previous year’s average growth, reinforcing expectations that the country’s economy is likely to simmer down as it tackles debt risks.

The National Bureau of Statistics (NBS) stated on Tuesday that industrial firms with annual income of more than CN¥20 million ($3.20 million) reported profits increase of CN¥968.9 billion ($154.57 billion) in the first two months of the year from December.

That was 16.1 percent higher than the 10.8 percent gain recorded in December, though it fell behind the 31.5 percent boost in the same period of 2017.

Non-metal minerals, petroleum, natural gas, heating and pharmaceuticals were cited as the fastest-growing sectors for the January-February period.

Analyst David Qu said they believe it is highly possible that industrial profits will maintain double-digit growth for the rest of the year, even with sluggish price movement.  

On the other hand, some analysts were not that optimistic, expressing caution on the near-term industrial profit growth outlook.

The bureau showed combined January and February data to tweak inaccuracies that stemmed from the Lunar New Year holidays, which began in mid-February of 2018 after starting at the end of January in the prior year.

Debt Risks Clampdown to Slow China’s Economy

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China’s economic growth pace might just hit the brakes this year, as the regulatory clampdown on debt risks and pollution is expected to affect output.

Some analysts expect benefit from high prices to drop, as producer price index (PPI) inflation continues to subside, while the cooling property area and rising trade protectionism are also likely to put overall demand, as well as investment and output increase under pressure.

The country’s industrial earnings were up by 29.6 percent in the first two months from the year before, decelerating from a 45.1 percent gain in 2017.

Lower profits may cause inconvenience to Beijing’s battle to curb mounting debt accumulated by its state-owned giants, who dominate its key businesses.  

Data from the bureau showed that industrial liabilities climbed 6 percent year-on-year by the end of last month to CN¥59.6 trillion ($9.49 trillion), compared with the 5.7 in the earlier year.

Ratio of liabilities to assets at industrial companies also jumped from 55.5 percent to 56.3 percent in December, underscoring the government’s challenges in controlling a rapid growth in corporate debt.

The head of the state assets regulator stated earlier this month that easing leverage and minimizing risks in the sector remains a priority.

China’s exporters also benefited from robust global demand, but rapidly worsening trade tensions with the US seem to make the chance for a repeat performance this year uncertain.

Chinese steel futures prices hit their lowest in 8 months on concerns over a potential global trade war and weakening demand at home, as the heated property market appears to be cooling down.

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