Industrial profit growth starts to slow


Updated Thu, 26 Aug 2004 00:00:00 GMT

Income growth in China's industrial enterprises slowed during the first seven months of the year, due to the central government's macro-control measures to cool down the economy.

Profits made by industrial companies increase 39.7 per cent during the January-July period compared with the same period a year ago, the National Bureau of Statistics said yesterday.

 The growth rate was 1.9 percentage points lower than in the first six months.

During the seven months, industrial firms handed in 483.6 billion yuan (US$58.3 billion) of taxes to the State, which increase  22 per cent from a year ago, the bureau said.

Net loss by money-losing firms was 76.2 billion yuan (US$9.2 billion), up 7.4 per cent.

The slower profit growth indicates the central government's macro-control measures are working, said Zhang Liqun, a senior researcher with the State Council Development Research Centre.

China has taken a raft of measures since the second half of last year to cool down the economy. The measures included raising bank reserve requirements three times and curbing unwanted fixed asset investment projects.

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

Profits earned by the steel industry, a sector targeted by the government in its drive to reduce investment, rose 71.2 per cent during the first seven months, 9.2 percentage points lower than that in the first six months, the statistics bureau said. 

However, the government should be alert to a rebound in both fixed asset investment and raw material prices, he said.

China's fixed asset investment showed a stronger improvement in July, earlier figures indicated.

But Zhang said figures in July alone could not indicate fixed asset investment had become stable. "We need to observe the figures for the next few months."

    "I'm still worrying the fixed asset investment growth might decline too much, because this would have a big impact on the economic growth," he said.

    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 per cent to generate enough jobs.

China's second quarter gross domestic product (GDP) rose a year-on-year 9.6 per cent. It rose 9.8 per cent for the first quarter.

Statistics bureau spokesman Zheng Jingping said the overall performance of the national economy was good.

"The national economy retained its stability and fast growth, the economic efficiency was improved continuously... residents' income rose obviously," he said.

The uncertainties and unhealthy factors existing in economic performance have also been put under initial control, Zheng said.

    However, the government should be aware at the same time that those prominent problems existing in the economy have not been fundamentally rooted out, he said.

    The energy and transportation bottlenecks and rapid growth in fixed asset investments in some sectors are still troubling, he said.

    Yuwa Hedrick-Wong, an economic advisor of the payments solutions company MasterCard International's Asia-Pacific region, said the Chinese economy would continue to develop stably in the coming months.

    The growth in China's economy would reduce from 11 per cent to 9 per cent, shifting from acceleration to cruising, he said.