Chinese Banks Contribute 70% of Profits in Services, Raising Concerns over Structural Imbalances

Chinese Banks Contribute 70Pct of Profits in Services, Raising Concerns over Structural Imbalances

09-02 13:46 Caijing

Banks’ profits have grown rapidly from 58 percent in 2009 and 68 percent in 2013, as a share of total profits in services.

Extra-high profitability in Chinese banks, most of which are state-owned or state-backed, has raised concerns about structural imbalances in services, a sector that has been attached much importance in steering a growth model away from exports to consumption. Chinese banks have generated nearly 70 percent of profits in total among the top 500 companies in services, although the number of banks only accounts one tenth of total, a report issued by the China Enterprise Confederation (CEC) over the weekend showed.Evidence is clear that China’s service sectors, especially companies in the modern services like banking and insurance, are becoming a prominent corporate profit driver in China, according to the Analysis About China Top 500 Companies in 2013.

While Chinese manufacturers have reported a year-on-year decline of 17.47 percent in net profit so far this year, profits in top 500 companies in services rose slightly in total despite a slowing economy, the report showed.

Operating revenues are even stronger for services, according to the report, with the top 500 companies embracing a growth of 15.13 percent compared with the same period a year ago, eclipsing that of top 500 manufactures for the first time.

Digging into the services, meanwhile, modern services like banking and insurance have for the first time in history contribute more than half in percentage of numbers.

The banks, with their numbers accounting for only 7.8 percent of top 500 in services, have contributed 67.5 percent of total profits.

On the face of it is evidence of huge breakthrough of overall economic restructuring, but a deeper look into the figures could uncover trails of structurally-imbalanced development in the sector, the People’s Daily said in a today’s report.

The dominance of Chinese banks is “extremely abnormal” that demands imminent adjustment, the report said, quoting Li Jianmign, vice president of the CEC.

According to Li, signs of the banking’s dominance emerged a decade ago, but it is in recent years that the position has been strengthened. Banks’ profits have grown rapidly from 58 percent in 2009 and 68 percent in 2013, as a share of total profits in services.

But even more alarming is that the banking advantage does not necessarily mean strong financial sector in the country, according to Li. Only eight insurers and three brokerages made their names onto the top 500 list in services, with their combined profits at merely 32.4 billion yuan.

Manufactures are even more lagged behind compared with banks in profitability. Profits of 268 manufacturing companies are equivalent to less than 57 percent of profits made by the country’s five biggest state-owned banks so far this year, according to the report.

“The deviation between banks and the real economy has been expanded since 2007, nudging more manufactures out of the list [of top 500 enterprises],” Li was quoted as saying.

China services sector grows steadily as government measures kick in

Mon, Sep 2 2013

By Langi Chiang

and Jonathan Standing

BEIJING (Reuters) – China’s services sector grew steadily in August as domestic demand picked up, official data showed on Tuesday, adding to signs that government measures have started to steer the world’s second-largest economy out of its longest slowdown.

The non-manufacturing purchasing managers’ index (PMI) dipped slightly to 53.9 last month from July’s 54.1 to be at the same level as in June, the National Bureau of Statistics said.

A reading above 50 indicates activity in the sector is accelerating, while one below 50 points to a slowdown.

The survey followed a pair of manufacturing PMIs which showed factory activity accelerated in August.

“The non-manufacturing sector grew steadily in August. The rise in new orders set a good foundation for growth in the next few months,” said Cai Jin, a vice head of the China Federation of Logistics and Purchasing (CFLP), which compiles the index on behalf of the NBS, said in a statement.

In a nod to signals the economy may be improving, Premier Li Keqiang struck a cautiously upbeat note on Tuesday.

“China’s economy has grown steadily in the first half of the year,” Li told an investment forum. “And recent economic data indicates China’s employment and inflation are stable.”

China’s economy has slowed in 12 of the past 14 quarters. In recent months, Beijing has rolled out measures to prevent growth from sliding too far, allowing it to set a base for pressing ahead with long-awaited structural reforms to move the economy off a dependence on investment, credit and exports.

These have included measures to support small businesses, which employ a large number of people, such as scrapping some taxes and making financing more easily available for them.

The NBS said a subindex of small business activities has risen for two months, without providing a specific number.

“The policies have shown their initial effects,” the CFLP said, adding that “with the upcoming holidays and implementation of policies to boost the telecommunications and health sectors, the services industry will turn better in the next few months.”

The subindex measuring new orders, from both home and abroad, rose to 50.9 in August from July’s 50.3, while input prices and service charges fell, easing cost pressures.

But new export orders contracted, with the subindex down to 49.6 from 53.1 in July, indicating demand remains soft despite signs of recovery in the United States and Europe.

The survey, which covers 1,200 firms in 27 industries, pointed to an improving job market with the employment subindex rising to 52.5 from July’s 51.3.

The services sector contributed to 45 percent of China’s gross domestic output in 2012, and it overtook manufacturing as the country’s biggest employer in 2011.

A separate PMI survey of the services industry by Markit Economics and HSBC will be released on Wednesday. That survey covers more smaller, private firms than the official PMI.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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