Fallout of slower growth

A sharp increase in domestic enterprises' profits used to be hailed as evidence of China's improved economic efficiency. However, as the country presses ahead to prevent overheating, a reduction in profitability should be accepted as the necessary price of cooling investment growth, but not necessarily a justification for lower efficiency.

China's major industries saw their profits increase 16.5 percent from a year earlier, during the first two months of this year. The figure marks a considerable deceleration from the 36.7 percent growth in profits in the first 11 months of last year.

Such a slowdown in profit growth is due to the impact of weakening external demand and the effects of the severe winter weather on enterprises. On one hand, the ongoing recession in the United States has reduced demand for Chinese exports, which are more expensive because of the appreciating Chinese currency.