"Companies in China are facing enormous operational pressures. The momentum of growth is weak, and the downward pressure on the economy is relatively large."
- Bank of Communications Co.
Chinese industrial companies' reported profits fell the most in at least four years in August as the pillars of China's infrastructure-led growth model suffered from rising costs and persistent falling prices. The firms were also hurt by the stock market slump, which pushed down their investment returns, while the Yuan fluctuations increased companies' financial costs. According to the National Bureau of Statistics, industrial profits in the world's second largest economy tumbled 8.8% in August from a year earlier, with the biggest drops concentrated in producers of coal, oil and metals. Profits declined the most since the government began releasing such type of data in October 2011. Among the main contributors to the steep drop was a noticeable increase in financial costs of Chinese industrial firms. Financial payments surged by 23.9% from the previous year, compared to a 3% annual decline in July, mainly due to highly volatile domestic stock markets.
Meanwhile, the NBS report also revealed that despite overall weakness in industrial sector, inventories of manufactured goods have been rising much more slowly in August, compared with the previous month, which helped enterprises to release inventory pressure and operation difficulties.
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