Dragged down by weak heavy industry and an ailing state-owned sector, industrial profitability in China fell last year to its lowest level since 2003 while persistent overcapacity is likely to perpetuate downward pressures on profit margins, a new study has found.
Louis Kuijs, head of Asia economics at research firm Oxford Economics, found that the average profit margin among some 328,000 firms in China’s official industrial survey – which includes all state-owned enterprises and those non state-owned firms that post annual sales in excess of Rmb20m – fell to 5.8 per cent in 2015, down from a recent high of 7.6 per cent in 2010 (see chart).
However, this headline number concealed a broad divergence. State-owned companies are likely to have registered a continuation last year of the weakening returns on assets they have suffered since 2010, while non state companiesappear to have held up better (see chart), Mr Kuijs said.