China’s industrial profits rise, thanks to waves of stimulus

Latest release from National Bureau of Statistics, showed that industrial profits rose by 4.8% in January and February, reversing decline of -4.7% in December and ending a seven month losing stretch. Moreover the rise marks fastest pace of growth in 18 months, best since July 2014.

While improvements in industrial profits are definitely welcoming, it is however it is the stimulus, which is bearing fruit. While stimulus can be seen as necessary tool to boost ailing economy, it is also a hindrance to reforms. Riding on stimulus means, Chinese economy still far from moving to domestic consumption driven one.

This year, several Chinese officials, including premiere Li Keqiang have indicated Chinese official budget deficit likely to rise temporarily to boost ailing economy and to smoothen supply side reforms. Several other indicators, such as price of housings, price of iron ore, copper has recently shows signs of bottoming out, indicating that Chinese economic slowdown may have hit a temporary bottom.

Despite so, any sharp rise in volatility or depreciation in Chinese currency Yuan is still large enough to spook investors.