Industrial firms' profit capability declines
By Xu Dashan (China Daily)
Updated: 2004-11-24 08:38

The central government's macro control measures to cool the economy continued to have an impact on the profit capability of China's industrial firms.

Figures from the National Bureau of Statistics indicate the country's industrial firms earned a total profit of 913.3 billion yuan (US$110.0 billion) during the first 10 months of this year, an increase of 39.7 per cent from the same period last year.

However, the growth rate slowed slightly from the 39.8 per cent rate recorded for the first nine months.

Profit by the State-owned firms and firms in which the State hold a majority stake grew a year-on-year 43.6 per cent during the 10 months, while that by overseas-funded firms grew only 28.9 per cent, the bureau said yesterday.

During the January-October period, industrial firms handed in 715.1 billion yuan (US$86.2 billion) of taxes to the State, an increase of 22.5 per cent from a year ago, the bureau said.

Net losses by losing firms was 101 billion yuan (US$12.2 billion), up 8.6 per cent, it said.

Chen Jijun, a senior analyst with the Beijing-based CITIC Securities, said the industrial firms' profit capability continued to decline, due to government macro control measures.

The government has taken a raft of measures to try to cool the economy since the second half of last year. The measures include raising bank reserve requirements three times and curbing unwanted fixed asset investment projects in red-hot sectors such as cement and steel.

Due to those measures, growth in both fixed asset investment and loans, two major indicators policy-makers have been closely watching for the impact of the cooling measures, has been declining.

"The macro control measures had a big impact on the overall demand, which in turn had an impact on the industrial firms' profit," Chen said.

According to the statistics bureau, earnings of crude oil and natural gas producers rose a year-on-year 35.5 per cent to 144.8 billion yuan (US$17.4 billion) during the 10 months compared with a year ago.

Profits of the steel sector rose 63.4 per cent to 80.4 billion yuan (US$9.7 billion), while earnings of non-ferrous metal smelters increased 75.3 per cent to 22.1 billion yuan (US$2.7 billion).

Profits of building materials companies rose 63.8 per cent to 30.8 billion yuan (US$3.7 billion).

Niu Li, a senior economist with the State Information Centre, said profit growth was still in a good situation.

"The higher ex-factory prices (factory-gate prices) and strong demand backed by the country's fast growing economy will continue to keep the industrial firms' profit growing at a faster rate," he said.

China's economy grew a year-on-year 9.1 per cent in the third quarter, slowing from 9.6 per cent in the second quarter and 9.8 per cent in the first quarter.

Officials and economists agree the government's macro control measures have achieved significant results.

They also agree some unstable and unhealthy factors existing in economic life have been put under control.

On the other hand, they believe some prominent problems existing in the economy have not been fundamentally rooted out.

Energy and transportation bottlenecks, a possible rebound in fixed asset investment and the fast decline in money supply and loans continue to be troubling.

However, economist Wang Tongsan at the Chinese Academy of Social Sciences said China's economic growth this year should be higher than last year's 9.1 per cent.

The economy should grow 9.4 per cent this year and slow slightly to 8.9 per cent next year, he predicted.

The economy has stepped into an upward development period, he said.

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