China:Industrial profit growth moderated in September

Profits of industrial companies contracted on a month-over-month basis inSeptember compared with August (after our seasonal adjustment). In year-over-yearterms profit growth also moderated from August (see Exhibit 1). If we decomposeprofit growth into revenue growth and profit ratio changes, the moderation inSeptember’s profit growth was mainly driven by a smaller profit ratio improvement(although profit ratio is still higher than one year ago), and lower revenue growth alsocontributed (see Exhibit 2). As we discussed before, we think the previousimprovement in profit ratio is probably coming to an end due to the recent increasein global commodity prices and our expectation that reduction in interest paymentsmay also start to fade. Despite higher PPI inflation, revenue growth in year-over-yearterms still moderated, due to the fall in implied sales volume (see Exhibit 3).

    By industry breakdown, the data showed that profit growth deteriorated in majorsub-industries, except coal, petroleum and the mining industry in general, whichbenefited from the recent rally in coal and metal prices.