China's biggest state-owned enterprises (SOEs) reported solid profit growth in the first half, after making adjustments to production and investment in accordance with central government macroeconomic management policies.

The 191 flagships of their industries recorded a combined profit of 225.4 billion yuan (US$27.2 billion) during the January-June period, up 38.6 percent year-on-year.

The biggest advances were recorded in the petrochemicals, metallurgy, transportation, mining, telecommunications and power industries, contributing about 81.7 percent of the profit growth, according to a Sunday press release by the State-owned Assets Supervision and Administration Commission (SASAC).

Transportation businesses recorded greatest gains, soaring some 344 percent in the first half on a year-on-year basis as orders increased rapidly with surging demand for coal, oil and other raw materials.

Growing demand for various commodities also gave strong impetus to the energy and power industries.

The State Grid Corporation logged 28.3 billion kilowatt-hours of cross-regional electricity transmission from January to June, up 212 percent compared with the same period a year ago.

The central SOEs have tried their best to increase coal, power and oil production and transportation capacity to supply the market, a SASAC spokesman said. The coal enterprises, for example, managed to meet the demand for coal in major power plants when supply was tight.

Listed transportation and coal companies are also performing well.

Chen Huiqin, an analyst with Huatai Securities, said that coal companies with excellent performances and sufficient funds, as well as port, road and transport companies, are the preferred stock picks in the second half of the year.

As economic growth stays on the fast track and the rise in demand for resources continues to outstrip that in supply, resource-oriented enterprises such as coal and electricity are expected to maintain momentum and benefit from further price rallies.

According to SASAC, overall fixed assets investment made by the 191 central SOEs in the first six months of this year totaled 313.7 billion yuan (US$37.9 billion), an increase of 34.4 percent year-on-year. However, the growth rate was down 7.4 percentage points from that of the first quarter as a result of macroeconomic controls imposed to cool the overheating economy.

Instead of blind expansion, most of the fixed assets investment was made in upgrading product structure, technology and product quality.

The slowdown in investment growth is more obvious in the central automobile enterprises, whose investment in new projects in the first half accounted for just 0.7 percent of all completed investment.

Central iron and steel enterprises recorded declines in investment in new projects. They are now concentrating on restructuring their product lines to enhance competitiveness. Shanghai Baosteel Group, for example, developed world-class stainless steel oil pipe. Output of new products by the Anshan Iron and Steel Group jumped 20 percent in the first half compared with the same period last year.

Agriculture-related enterprises have enhanced research and development to produce new crop seed and worked to ensure stability in foodstuffs markets and fertilizer supply, according to SASAC.

Meanwhile, eight central SOEs were ranked in the 2003 Fortune Global 500, released last week, accounting for half of all Chinese enterprises that made the list.

They include the State Grid Corp, Sinochem, China Mobile and Shanghai Baosteel.

(China Daily July 19, 2004)