Industrial firms earned total profits of 704.5 billion yuan (US$84.9 billion) during the January-August period, up 38.5 percent from a year ago, the National Bureau of Statistics said Wednesday.

The growth rate was 1.2 percentage points lower than that for the first seven months.

During the period, industrial firms handed in 556.8 billion yuan (US$67.1 billion) in taxes to the State, an increase of 21.8 percent from a year ago, the bureau said.

Net losses by firms that lost money were 85.3 billion yuan (US$10.3 billion), up 8.7 percent, it said.

Niu Li, a senior economist with the State Information Centre, said a decline in fixed asset investment growth because of the macro-control measures resulted in a drop in overall demand, which had an impact on the companies' profit.

A price drop in raw materials also led to a drop in the companies' profit growth, he said.

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

In nationwide checks on 70,600 investment projects in industries such as steel, cement and property, the government has closed or delayed 4,150 projects so far this year, involving 844.1 billion yuan (US$101.7 billion) in planned investment.

Because of these measures, growth in both fixed asset investment and loans two major indicators that policy-makers have been watching closely to ascertain the impact of cooling down measures has been declining.

According to the statistics bureau, profits earned by the steel industry, a sector targeted by the government in its drive to reduce investment, rose 61.9 percent during the first eight months, 9.3 percentage points lower than that for the first seven months.

And profits made by the non-ferrous industry rose a year-on-year 83.5 percent during the period. The growth rate was 8 percentage points lower than the first seven months.

"Profit growth is still in a good situation," Niu said.

However, the government should be aware of a rebound in both fixed asset investment and raw materials prices, he said.

Earlier figures indicated that China's fixed asset investment showed stronger improvement in July and August.

But Zhang Liqun, a senior researcher at the State Council's Development Research Center, said he was worried the fixed asset investment growth might decline too much.

A fast decline in fixed asset investment would have a big impact on economic growth, he said.

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

(China Daily September 23, 2004)