The tree wants to be calm and the wind does not stop. In the autumn season, the taste of harvest is coming.

In August, the profit growth rate of industrial enterprises nationwide reached 24%, and reached a new high in four years. At the same time, concerns about the Chinese economy in the fourth quarter have intensified, and the topic of “stagflation” has risen again.

Among them, especially the international rating agencies Standard & Poor's and Moody's successively downgraded China's sovereign credit and well-known leading enterprises, further aggravating the Chinese economy's worries.

Compared with 2013, the high profit growth of industrial enterprises in August this year occurred in the context of the rising base of the same period last year. This also shows that the profit growth rate of industrial enterprises nationwide in August this year is indeed amazing.

Overall, the profit growth rate of industrial enterprises in August was 7.5 percentage points faster than that in July. What does this mean? What signal was sent? Will China’s economy “stagflate” in the fourth quarter? A number of institutional researchers told Wall Street that the statistics are not contradictory, and the atmosphere is very strong!

Slow sales, lower costs, faster profits

From January to August, the income from the main business of industrial enterprises grew steadily, achieving a total income of 80.3 trillion yuan, a year-on-year increase of 12.7%, down 0.4 percentage points from January to July.

Whether it is the monthly growth rate in August or the cumulative growth rate from January to August, the profits of industrial enterprises are accelerating.

For the rapid growth of industrial profits in August, Dr. He Ping from the Industry Department of the National Bureau of Statistics said that there are three main reasons: First, the price of industrial products rose in August; second, the production cost of enterprises decreased; third, the oil, steel and other industries pulled, leading to industrial profits. The growth rate is accelerating.

This statement is recognized by market institutions. Bank of China 601988, researcher Liang Wei of the International Finance Research Institute pointed out that the acceleration of industrial profit growth is mainly affected by the rebound of product prices, and profit is a comprehensive reflection of enterprise sales, prices and costs. In August, major indicators such as consumption, investment and exports were lower than expected, and the growth rate of industrial added value also hit a new low in the year, which led to a slowdown in the growth rate of business revenue.

However, in the case of decelerating corporate sales, corporate profits are accelerating. In this respect, the cost continues to decline. In August, the cost per 100 yuan of main business income was 85.44 yuan, a decrease of 0.64 yuan. More importantly, the price of the product rebounded. In August, the PPI rose again to 6.3%, and the prices of mining industry and raw material industrial products rose significantly.

This also changed the situation that revenue and cost growth were the same in the first three months. In August, the growth rate of business revenue was 0.2 percentage points faster than the cost growth.

The profits of state-owned enterprises increased by 46.3% , which is three times that of private enterprises!

From January to August, state-owned holding enterprises realized a total profit of 1,084.07 billion yuan, a year-on-year increase of 46.3%; collective enterprises realized a total profit of 29.41 billion yuan, an increase of 4.6%; joint-stock enterprises realized a total profit of 3,462.93 billion yuan, an increase of 23.3%.

Foreign-invested enterprises, Hong Kong, Macao and Taiwanese investment enterprises realized a total profit of 1,180.94 billion yuan, an increase of 18%; private enterprises realized a total profit of 1,633.21 billion yuan, an increase of 14%.

From this data comparison, it is found that the profit growth of state-owned holding companies greatly exceeds other types of enterprises, of which private enterprises are only 14%.

The rising price of raw materials is the main driver of industrial profits.

PPI has maintained a rapid growth momentum this year. After holding steady at 5.5% for three consecutive months, the August PPI surpassed expectations to rebound to 6.3%. This has formed a strong support for the growth of industrial profits in August.

In terms of industries, the growth rate of profits in the raw materials industries such as oil and steel has accelerated, and it has become the main force driving the recovery of the profits of the entire industrial enterprises.

According to specific data, in August, the profit of petroleum processing, coking and nuclear fuel processing industry increased by 103.4% year-on-year, and the growth rate was 89% higher than that in July. The profit of ferrous metal smelting and rolling processing industry increased by 131.1% year-on-year, and the growth rate was faster than that in July. 5.9 percentage points.

The industry believes that most of the upstream raw materials belong to the monopoly industry, and the fastest growing is the mining industry. From January to August, the mining industry realized a total profit of 324.89 billion yuan, a year-on-year increase of 5.9 times; the total profit of coal mining and washing industry increased by 9.6 times year-on-year, as coal prices fell in the same year.

However, the prices of upstream raw materials have risen so sharply that those producing raw materials may have to accept a decline in profits, resulting in a total profit of 274.13 billion yuan, a decrease of 22.6% in the electricity, heat, gas and water production and supply industries.

Overall, from January to August, among the 41 major industrial sectors, the total profit of 33 industries increased year-on-year, and only 8 industries decreased:

The total profit of coal mining and washing industry increased by 15% year-on-year, the agricultural and sideline food processing industry increased by 9.9%, the textile industry increased by 5.8%, the petroleum processing, coking and nuclear fuel processing industry increased by 2.4 times, and the chemical raw materials and chemical products manufacturing increased by 14%. Non-metallic mineral products industry increased by 9.1%, ferrous metal smelting and rolling processing industry increased by 2.1 times, non-ferrous metal smelting and rolling processing industry increased by 31.1%, general equipment manufacturing industry increased by 0.6%, special equipment manufacturing industry increased by 7.5%, automobile manufacturing The industry grew by 11%, the electrical machinery and equipment manufacturing industry grew by 15.1%, and the computer, communications and other electronic equipment manufacturing industries grew by 19.8%.

The price increase of agriculture, vice-owned and home textiles has just begun.

At present, PPI is difficult to transmit to the middle and lower reaches of the industry, so CPI has not risen this year.

However, the problems still exist – in the face of poor PPI and CPI scissors, the face of PPI rise does not trigger inflation, who is suffering from the cost pressure?

Since the beginning of this year, the performance of the upstream industry has generally reversed. However, in the case that the terminal demand has not increased and the CPI has remained low, is the current operation status of the middle and lower reaches, especially the small and medium-sized private enterprises worthy of attention?

What is more worthy of attention is, if the PPI and CPI scissors continue to fall in the fourth quarter, will it trigger the collapse of middle and lower-end enterprises next year?

Relevant institutions believe that PPI is difficult to transmit to CPI, indicating that there is a surplus of products in the middle and lower reaches, and competition is fierce and lacking in pricing power. No one dares to digest cost pressures with price increases to prevent market share.

However, this phenomenon cannot be maintained for too long. In the home textile industry, this round of price hikes was mainly due to the large number of printing and dyeing factories closed, and the tight supply of fabrics led to the rise in fabric prices. In view of various comprehensive factors, dealers expect that the price hike of home textile fabrics has just begun.

According to Wall Street, the price of upstream fabrics for home textiles has increased since August, and the average increase has reached 5%. In addition, August CPI rose 1.8% year-on-year, an increase of 0.4 percentage points over the previous month, and signaled inflation. Although in the context of agricultural supply-side reform, the CPI increase in food during the year will be at a low level, but the increase in prices of agricultural and sideline products in the fourth quarter is not ruled out.

China's economic overcapacity "changed"

In 2013-2015, there is indeed an overcapacity in China. It is mainly reflected in the overcapacity of steel, cement, automobiles and other real estate-related industries; it also includes heavy industries such as shipbuilding, electrolytic aluminum, coal, chemical and other high pollution and high energy consumption.

Taking the steel industry as an example, from 2012 to 2014, the profit rate of key national steel enterprises was below 1%, far lower than the average profit rate of industrial enterprises. In 2015, the entire steel industry was all losing money.

In 2015, China proposed supply-side reforms to accelerate excess capacity through supply-side reforms. In 2016, the steel industry achieved a turnaround in losses. In 2017, the steel industry made a large profit, which gradually brought supply and demand back to balance.

The semi-annual report of the listed steel company in 2017 has ushered in a long-awaited increase in the overall efficiency of the whole industry. From the perspective of total net profit, the total net profit of 28 listed steel enterprises was 21.5 billion yuan, a five-fold increase from last year's 3.714 billion yuan.

Take the steel industry as an example, through the supply-side reform to achieve profit-making in the steel industry, while eliminating bank bad debt risks and preventing systemic risks. From the perspective of the industrial chain, this will drive the recovery of upstream and downstream related industries, and the leverage of enterprises will gradually decrease.

So far, international institutions have changed their overcapacity in the Chinese economy. Ayaz Ebrahim, head of JPME Emerging Markets and Asia Pacific Asset Allocation Team, said that in terms of overcapacity, the Chinese government is launching capacity in the coal and steel industries, which is the most important shift in the Chinese economy in the past 20 years.

The data is not contradictory, and the atmosphere is very strong!

The relevant brokerages pointed out that the decline in corporate revenues and the acceleration of profits in August were not inconsistent.

The data on industrial added value, fixed asset investment growth, total consumption, and real estate investment released on September 14th reflects the demand is not as expected, or can be understood as the decline in operating income (reduction in capacity); The sharp increase in industrial profits can be understood as the increase in net profit growth of enterprises due to lower costs or higher product prices due to lower revenue growth.

The key question is whether this company's revenue growth rate will decrease, and the profit growth rate will accelerate against the trend. Can it continue in the fourth quarter?

A brokerage analyst said that it can last for a short time and it will be difficult to sustain for a long time. First of all, the data is good for the market, especially the cycle sector; and before the 19th, it is expected that the October data will not be bad. However, whether the subsequent changes in the market's expectations of insufficient economic demand will require data validation in the next few months.

BOC's macro-receipt research team pointed out that the profit of industrial enterprises improved significantly in August. On the one hand, it benefited from supply-side reform, and some backward production capacity was eliminated. On the other hand, due to the supply side, industrial products prices rose and were at a high level. In addition, September and October are the peak seasons for production, and industrial enterprises are expected to continue to improve.

Bank of Communications 601328, the chief economist of the stock bar Lian Ping said that the PPI year-on-year growth rebounded to 6.3% after three consecutive months of steady operation, mainly due to the recent sharp increase in the prices of ferrous and non-ferrous metals. Recently, steel prices have risen sharply, and there are also many reasons. On the one hand, the recovery of infrastructure and some manufacturing industries has driven demand; on the other hand, de-capacity and environmentally-friendly production have brought supply contraction, and it does not rule out a large amount of capital flowing into the primary product market.

China Merchants Securities 600999, the stock bar macro research team released a report on the 27th, the current market began to debate the sustainability of industrial profit improvement. It should be noted that the current distribution pattern is shifting to favor the direction of the enterprise, and the demand structure is shifting from investment-based to consumption and net exports, and the external demand recovery and consumption upgrading have medium- and long-term logic. Under the combined effect, industrial profit improvement has gradually separated from economic cycle fluctuations, and industrial enterprises' profits are expected to enter a stable state of medium and high-speed growth in the long-term.

(Editor: Yue Right)