Chinese corporate profit growth, slowing on waning export demand from Europe, may be further undermined as a campaign to cool property prices reduces the value of investments.
Industrial companies’ net income rose 12.5 percent in October from a year earlier, less than half the 27 percent pace from January to September, a statistics bureau statement showed yesterday.
The slowdown adds to evidence that Europe’s deepening financial crisis and a faltering recovery in the U.S. are weighing on profits. More than 60 percent of Chinese companies that sold bonds in the past six months invest in the real estate market, where sales are weakening under government curbs that Vice Premier Li Keqiang pledged on Nov. 25 to maintain.
“The slowdown of the economy will become more prominent in the next two quarters,” said Wang Tao, a Hong Kong-based economist for UBS AG who has also worked for the International Monetary Fund. She said that industrial companies’ profit growth may keep cooling and the government may enact “more obvious policy loosening in the first quarter of next year.”
The government can support growth by ramping up state housing construction, while moderating inflation may leave room for monetary policy loosening.
China’s economy can avoid a so-called hard landing with an expansion of more than 8 percent next year, Wang said. The economy grew 10.4 percent in 2010 and 9.1 percent in the third quarter of this year.
Noyer on Crisis
In Tokyo, Bank of France Governor Christian Noyer said the crisis in Europe, China’s biggest export market, has worsened “significantly” over the past few weeks and bond markets in the euro area “are not functioning normally.”
Asian stocks jumped on speculation that the International Monetary Fund will aid Italy, a topic that Noyer declined to discuss. The MSCI Asia Pacific Index rose 1.9 percent as of 1:16 p.m. in Tokyo, the first increase in four days.
Elsewhere in Asia, Thailand reports production figures today, while the Philippine economy grew a less-than-forecast 3.2 percent in the third quarter from a year earlier, according to government data.
Germany, meanwhile, is due to release inflation figures. In the U.S., a report from the Commerce Department may show fallout from that nation’s housing bubble weighing on the world’s biggest economy.
New homes may have sold at a 313,000 annual rate last month, the same as the previous month, a Bloomberg News survey of analysts shows. That would put the monthly average for the year at 304,000, less than the 323,000 in 2010 that was the lowest since data-keeping began in 1963.
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