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This article was originally posted in the Gongkong news center and is part of a new series aimed at raising awareness of China's Industry 4.0 Initiative.

Dr. Ping He of the National Statistics Bureau interprets industrial profits data from January to May 2017

On June 27 , the National Statistics Bureau released financial statistics of industrial enterprises as of May 2017. Profits of industrial enterprises increased by 16.7%, with an increased growth rate of 2.7% higher than in April; From January to May, cumulative profits increased 22.7% compared to last year, although growth rate experienced a slowdown of 1.7% compared to January to April.

1) Industrial profits experience continued growth

(A) In May, among industrial enterprises that generated increased profit, the mining sector accounted for 35.5%, an 18% decrease compared with April; the equipment manufacturing industry accounted for 29.3%, an increase of 5.5% over April. Consumer goods manufacturing profits rose 12.5%, with a increase of 1% in growth rate compared to April, continuing the accelerating growth trend.

(B) Growth rates remain on an increasing trend. In late May, industrial enterprises achieved overall profits of 6.09%, up 0.19%.

(C) The state of receivable accounts in companies has continued to improve. In late May, industrial enterprises accounts receivable averaged a  payback period of 38 days, a 1.1 days year-on-year reduction.

(D) Turnover rates of finished products continued to accelerate. In late May, the average turnover for finished products was 14.2 days, which a decrease of 0.7 days compared to last year.

(E) Debt status of companies have continued to improve.In late May, industrial enterprises debt ratio was 56.1%, down by 0.7%.

2) Growth in product sales and investments accelerate profit growth

Even though manufacturing maintained steady growth and slowing growth of prices of industrial products, industrial profits growth for May is still somewhat faster than in April. This is mainly due to:

(A) Product sales grew slightly faster, causing a slowdown in growth rate for total inventory for finished goods. In May, overall business revenue of industrial enterprises grew 13.1%, an increased growth rate of 1% over April. In late May, total inventory for finished goods increased by 9.3%, a decrease of 1.1% in growth rate compared to end of April, and the first decrease this year.

(B) Profits from investment also increased rapidly. Most earnings from corporate investment are mostly generated in May and June, hence its effect on current earnings becomes more obvious. In May, investment income for industrial enterprises grew 32.5%, compared to a 0.9% decrease in April, boosting profit growth rate by 2.1% higher than in April.

(C) Net operating incomes increased. In May, total net operating income of industrial enterprises rose 34.1% year-on-year, compared to a 6.9% decrease in April, increasing profit growth rate by 1.3% compared to April.

(D) Base figures last year was low. In May last year, profits of industrial enterprises increased by only 3.7%, the second lowest month for all months last year.

(E) Profits for automotive, electricity and tobacco industries are improving. In May, the profits for the automotive industry rose 4% , while it decreased by 6.7% in April; year-on-year profits for the electricity production industry declined by 31.8%, a smaller decline compared to April by 10.2%; due to inventory reduction and expansion of sales, profits for the tobacco industry rose by 82.4%, while it declined by 18.4% in April. The total impact of these three industries accelerated overall growth rate by 3%.

The data also shows that for January to May, industrial enterprises generated 85.62 yuan cost per 100 yuan of profit, which was down 0.04 yuan year on year. However, this figure has been on a increasing trend for three consecutive months. In May alone, enterprises generated 86.04 yuan of cost per 100 yuan profit, which is up 0.07 yuan and a cause for concern.