For some time now it had been reported that China was experiencing profitless growth. Earnings growth had been negative for the past five months because of a slowdown in sales.
But the latest data from the National Bureau of Statistics shows that profits for manufacturing companies were up 7.8 percent year-over-year (YoY) in September.
Earnings growth had declined because of raw material prices, slowdown in manufacturing sales because of the inventory cycle, slowdown in exports and wages that were up 12 percent YoY in the Jan-Sept 2012 period.
Bank of America's Ting Lu writes that earnings growth among manufacturers could outpace GDP growth again:
"Historical experience suggests earnings recovery would lag behind GDP growth. As the Chinese economy might have already bottomed in 3Q12, we see earning growth in the manufacturing sector could have turned the corner in September.
Falling raw material prices this year will be a big positive, restocking will push up top-line sales which in turn will improve margins. Finally, labor costs would grow at a slower pace as employment growth for manufacturers has been trending down to 1.3% yoy in Aug from 9.1% at end-2011."
This latest data adds to Ting's argument that the Chinese economy has bottomed out.
The following charts show the rise in the profit margin in September, and a trajectory of sales revenue and profits since January 2011:
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