Chinese Profit Sustainability

REG Monitor

By Rachel Ziemba

In a recent paper, Song-Yi Kim and Louis Kuijs look at the enduring strength of Chinese corporate profits amid rising imput and wage costs. Overall they argue that growing productivity gains. These gains and efficiencies were greatest, they argue, in sectors with strongest wage pressures. These results do rely on piecing together the available data – for example the broad input/output price indices might obscure changes in the relative sophistication of products and wage rates do not capture unofficial workers.

Their conclusion:

China ’s industrial sector has experienced hefty cost pressures in recent years coming from rapid increases in raw material prices and wages. At the same time, profit margins have largely continued their trend rise. China’s industrial enterprises have been able to cope with the cost pressures because of rapid growth of productivity and efficiency and output price increases…Our results suggest that those sectors with the largest cost pressures appear to have made the largest effort in offsetting the cost pressures. …

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