China: Strong industrial profits from credit growth – ING

Iris Pang, economist at ING, notes that China’s industrial firms profits jumped by 13.9% year on year in March but was -3.3% in 1Q19, due to the drag from the14% decline in the first two months of 2019.

Key Quotes

“The big difference of profit growth between March and 1Q19 is probably because of the strong yuan loan growth in March at 51%YoY, especially loans for small private firms, which is a policy objective directed from the central government.”

“Account receivables rose 6.5%YoY at the end of March. This means there are manufacturers that still cannot fulfil their payments, and this remains a key risk in the manufacturing sector as a whole.”

“We think the government probably sees this risk too, and therefore is likely to continue to use strong credit growth to support small private manufacturers.”