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Industrial Profit Growth Starts to Slow
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Industrial enterprises reported profits rising 39.7 percent year-on-year during the January-July period, the National Bureau of Statistics (NBS) announced on Tuesday. The growth rate was 1.9 percentage points lower than in the first six months.

During the seven months, industrial firms paid 483.6 billion yuan (US$58.3 billion) in taxes to the state, an increase of 22 percent from a year ago.

Net losses were 76.2 billion yuan (US$9.2 billion), up 7.4 percent.

The slower profit growth suggests that the central government's economic restraint measures are working, according to Zhang Liqun, a senior researcher with the State Council Development Research Center.

These measures, implemented since the second half of last year, have included raising bank reserve requirements three times and curbing unwanted fixed asset investment projects.

"The measures should have a great impact on companies’ profit growth," Zhang said.

Niu Li, a senior economist with the State Information Center, said the shrinkage in fixed asset investment growth resulted in a drop in overall demand, which had an impact on the companies' profits.

“A price drop in raw materials also led to a decline in profit growth,” said Niu.

Profits earned by the steel industry, a sector targeted by the government in its drive to reduce investment, rose 71.2 percent in the first seven months, 9.2 percentage points lower than growth in the first six months, according to the NBS.

Profits made in the non-ferrous metal industry rose 91.5 percent year-on-year during the period, 14.1 percentage points lower than in the first six months.

Niu indicated that profit growth was still good, but that the government should be alert for a rebound in fixed asset investment and raw material prices.

Fixed asset investment rose in July, but Zhang pointed out that a single month's figures did not indicate stability. He advised watching the figures over the next several months. He remains concerned that the slowdown could become excessive.

The government wants to bring economic growth down from the current levels, where many resources such as oil have been constrained, but needs it to stay above 7 percent to generate enough jobs.

China's second-quarter gross domestic product climbed 9.6 percent year-on-year, following a 9.8 percent rise in the first quarter.

"The national economy retained its stability and fast growth, and economic efficiency improved continuously. . . . Individual income rose noticeably," said NBS spokesman Zheng Jingping.

Zheng indicated that uncertain and unhealthy factors in China's economic performance have been put under initial control, but the government should be aware that some prominent problems in the economy have not been fundamentally rooted out.

Energy and transportation bottlenecks and persistently rapid growth in fixed asset investment in some sectors are still troubling, he said.

Yuwa Hedrick-Wong, an economic advisor for MasterCard International's Asia-Pacific region, believes that the Chinese economy will continue to develop solidly in the coming months. GDP growth should fall from 11 percent to 9 percent, shifting from acceleration to cruise.

(China Daily August 25, 2004)

 

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