China: Industrial profit growth remains resilient in May - Nomura

China’s industrial profit growth rose further in May, up 1.5 percentage points (pp) to 16.5% y-o-y ytd and in year-on-year terms, it moderated slightly to 21.1% from 21.9% in April, close to the full-year 2017 growth rate of 21.0%, notes the research team at Nomura.

Key Quotes

“Growth was underpinned by the cost factor (growth of operating costs slowed to 9.8% y-o-y ytd in May from 10.3% in April) rather than by the demand side (revenue growth fell to 10.3% from 10.6%). If we take into account higher PPI inflation in May, real demand could be weaker.”

“Overall, we remain cautious on the economy and believe that growth has yet to bottom out as domestic demand has been getting increasingly weaker due to deleveraging. We expect industrial profit growth to resume a downtrend in H2 2018.”