Profits earned by Chinese industrial companies rose 11.1% in March from a year earlier, adding to signs that the country’s economic slowdown may be bottoming out. 
Industrial profits rose to 561.24bn yuan ($86.50bn) in March, the National Bureau of Statistics(NBS) said on its website yesterday. 
That brought total first-quarter profits to 1.34tn yuan, up 7.4% from a year earlier and improving from a 4.8% rise in the January-February period. 
The data covers large enterprises with annual revenue of more than 20mn yuan from their main operations. 
The first-quarter gains were largely led by chemical companies and agricultural and food processing companies, which posted 20.8% and 12.1% growth compared with the same period a year earlier. 
But heavy industry and mining continued to struggle, with ferrous metal smelting and rolling firms seeing profits fall 15.8% in the quarter and profits for coal miners slumping 92.6%. Oil and gas producers posted a loss. 
Debt at Chinese industrial companies increased 5.2% on a yearly basis to 55.22tn yuan as of end-March, the bureau said. 
China’s economy grew 6.7% in the first quarter this year from a year earlier, its slowest pace in seven years, but better-than-expected consumer, investment and factory data have fuelled hopes that the economy’s prolonged downturn may be easing. 
Still, analysts are worried that the improvement may be largely driven by companies taking on more debt, raising questions about whether the seeming pick-up in the broader economy can be sustained. 
Adding to that caution, the statistics bureau warned that profits from investment and non-core activities “increased dramatically”, and that the rise in profits was not seen across the industrial spectrum. The bureau said that 30.5% of industrial profits in March stemmed from investments and non-core activities. 
“The pickup in March industrial profits was partly due to an improving economy, but it was not a balanced and stable recovery,” NBS official He Ping said in a statement accompanying the data. 
Slowing demand, high inventories and financing difficulties still trouble the sector, he added, and it remains to be seen whether the increase in profits is sustainable. Producer prices in March fell 4.3% from a year earlier, extending their decline to a full four years, but at a slower rate than a median forecast in a Reuters poll of a 4.6% decline. 
Economists said the slower fall in producer prices was driven by recovering global commodity prices and also an uptick in construction activity at home. 
Premier Li Keqiang said at a State Council meeting last week that China will take steps to boost exports, including encouraging banks to boost lending, expanding export credit insurance and raise tax rebates for some firms. 
Profits at China’s state-owned firms fell 13.8% in the first quarter from a year earlier, though the rate of decline eased slightly from the first two months of the year, the Ministry of Finance said on Tuesday.
Meanwhile, China’s massive corporate debt problem could be eased through debt-to-equity conversions or securitisation of non-performing loans, the International Monetary Fund said on Tuesday, but only if these apply to viable firms that undergo restructuring. 
The IMF said in a blog posting on its website that it welcomes recent statements by Chinese authorities that they are focusing on the problems of excessive corporate debt and the resulting burden on banks and China’s economy. 
It noted that China’s corporate debt now stands at about 160% of gross domestic product, which is high compared with many other countries, especially developing economies. 
The fund’s recent Global Financial Stability Report said Chinese banks’ corporate loan vulnerabilities need to be urgently addressed to avoid future problems. 
Two techniques to tackle debt problems have been highlighted by Chinese media – converting non-performing loans into equity and repackaging them into marketable securities – but the IMF said these would need to be coupled with broader restructuring efforts. 
“Unless they are carefully designed and part of a sound overall framework, they could actually worsen the problem, for example, by allowing ‘zombie’ firms to keep going,” the IMF said, in a reference to non-viable firms that are still operating. “Banks generally also don’t have the expertise to run or restructure a business and debt-equity conversions could create conflicts of interest – banks may keep lending to a now-related party.” 
The IMF called for such debt-to-equity swaps and loan securitisations to be part of a comprehensive framework to assess the viability of distressed firms, restructuring the viable ones and liquidating the others while addressing the social consequences of displaced workers. 
The framework also would require Chinese banks to proactively recognize and work out non-performing loans while sharing the financial burdens among banks, companies, institutional investors and the government. Improvements to China’s insolvency laws and development of distressed debt markets are also needed, the fund said.