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Statistics show rise in industrial profits
By Xu Dashan (China Daily)
Updated: 2004-10-26 22:51

Profit growth by China's industrial firms picked up significantly in the first nine months of this year, a clear indication that the country's fixed asset investment and raw materials prices might further rebound.

The National Bureau of Statistics said Tuesday that the country's industrial companies earned 808.8 billion yuan (US$97.4 billion) in profits in the first nine months of this year, a year-on-year increase of 39.8 per cent.

The growth rate was 1.3 percentage points higher than that for the first eight months of the year.

Zhang Xueying, a senior economist with the State Information Centre, said the recovery in industrial firms' profit growth was mainly because of the rebound in fixed asset investment and raw materials prices.

Fixed asset investment grew a year-on-year 18.3 per cent in May, due to the central government's measures to cool down the economy.

But it has started to rebound since then, to more than 30 per cent in July.

The statistics bureau did not release monthly fixed asset investment figures for August and September.

Zhu Jianfang, an economist at the Beijing-based China Securities, said the rebound in fixed asset investment was a result of the government's recent policy changes.

"While continuing to curb investment in red-hot sectors such as cement and steel, the government has increased investment in bottle-neck sectors such as energy and transportation," he said.

China's fixed asset investment grew rapidly since the second half of last year. It rose to 53 per cent during the first two months.

The government is concerned that excessive growth in some sectors and areas could have a serious impact on the economy.

As a result, the government has taken a raft of measures to try to cool the economy.

"The government should be alert of a further rebound in fixed asset investment," Zhang said.

Niu Li, another economist at the State Information Centre, said the government should also be alert to further price rises, because the price pressure was already very big.

"While food prices remain at a higher level, the international oil prices rise rapidly," he said.

The international oil prices rose to more than US$55 per barrel during the past several days.

"There are also signs that the raw material prices may be rebounded," he said.

The price rise would have a certain negative impact on ordinary people's lives, Niu said.

Chinese people have already suffered a negative interest rate.

"The negative interest rate would result in people's lower expectations for the future,"

said economist Qi Jingmei from the information centre.

The negative interest rate also leads to a decline in bank deposits, she said. "This will make their purchasing power drop."

"Some low-income families have even begun to worry whether their incomes are able to meet the basic needs for food and clothing," Qi said.

"Their health could also be at risk, because they will buy the cheapest products and not pay much attention to the quality of food."

Qi added that the impact of the price rise was greater in rural areas.

Although farmers' per capita cash income rose 11.4 per cent year-on-year during the first three quarters of 2004, retail sales in rural areas grew only 9.9 per cent. The growth rate was 4.7 percentage points lower than in urban areas.

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