China industrial profits suffer biggest drop since 2011 in Aug

Stock market slump hurts, yuan fluctuations increase financial expenditures

Profits earned by Chinese industrial companies declined at the sharpest rate in four years in August as costs kept rising and product prices kept falling, according to official data that adds to signs of weakness in the world's second largest economy.

Also hurting firms was China's stock market slump, which cut investment returns while fluctuations of the yuan increased companies' financial expenditures, the National Bureau of Statistics (NBS) said on Monday.

During August, profits of industrial companies dropped 8.8% from a year earlier, the biggest on-year fall since the NBS began monitoring such data in 2011.

For the first eight months of 2015, profits were down 1.9% from a year earlier, the bureau said.

The NBS said investment returns for industrial companies in August increased from a year earlier by 4.12 billion yuan ($6477 million), compared with July's 11.04 billion yuan gain.

Financial expenditures of industrial firms' increased by 23.9% in August from a year earlier, compared to a 3% annual drop in July.

The NBS did not elaborate on such expenditures, though He Ping, an official of its Industry Department, said in a statement accompanying the data "Affected by the fluctuation of renminbi exchange rates, some export-oriented firms saw obvious increase in exchange losses."

BIG HIT FOR MINING

Among 41 industrial sectors, 31 had year-on-year profit growth in the first eight months of this year, while 10 suffered drops, the NBS data showed.

The mining industry was the laggard with profits falling 57.3% in the first eight months of the year from a year earlier.

Meanwhile, state-owned firms were the worst performers among all companies. Their profits dived 24.7% in the first eight months, compared to a rise of 7.3% for private firms.

The inventory of industrial firms increased by 5.7% in August from a year ago, easing from 6.8% growth in July and marking the second consecutive month of slower gains, the NBS said.

He of NBS suggested that an ongoing destocking process would help struggling firms.

"The easing growth in inventory would relieve companies' inventory pressure and ease their operation difficulties," he said.

Growth in Chinese manufacturing has been stagnating. A preliminary private survey showed flagging demand dragged China's factory sector into its sharpest contraction in 6-1/2 years in September.

($1 = 6.3690 Chinese yuan)