China's industrial companies notched up profits of 234.8 billion yuan (US$28.3 billion) in the first quarter of this year, an increase of 44.2 percent compared with a year ago, the National Bureau of Statistics said on Friday. 

Experts said that the sector's increased profits were a result of a fast rise in the nation's fixed assets investment.

State-owned industrial firms and firms in which the state holds a majority stake earned profits of 123.5 billion yuan (US$14.9 billion) during the period, a year-on-year increase of 41.4 percent, the bureau said in a statement.

Industrial enterprises paid 202.5 billion yuan (US$24.4 billion) in taxes to the state, a year-on-year increase of 23.9 percent.

Sales income earned by industrial firms reached 3.82 trillion yuan (US$460.2 billion) during the January-March period, a year-on-year increase of 33 percent.

Net losses suffered by money-losing companies were 39.6 billion yuan (US$4.8 billion) during the period, a year-on-year increase of 5.1 percent.

Pointing to the increased fixed asset investment in the nation's industrial sector, Zhu Jianfang, an economist at China Securities, said this "will continue to grow at a high speed in the coming month, which helps earn higher profits for these companies."

The country's fixed asset investment grew year-on-year by 43 percent during the first quarter of this year.

And fuelled by this fast rise, China's gross domestic product increased year-on-year by 9.7 percent during the same period.

Statistics bureau spokesman Yao Jingyuan said the good industrial performance was also due to the upgrading of the domestic consumption structure, the adjustment of the industrial structure and price changes on the international market.

Profits made by a majority of the industrial sectors continued to maintain a rapid development momentum during the three months, the statistics bureau said.

Ferrous metal producers' profits increased by a massive 777 percent during the period, while those of non-ferrous metal producers grew by a year-on-year 280 percent.

Zheng Jingping, another spokesman at the statistics bureau, said the overall economic situation was positive during the first quarter.

"There were no obvious ups and downs in economic growth."

But Zheng admitted the fast rise in fixed asset investment posed a major problem for current economic development.

"Blind investment and low level repeated construction have not been put under effective control," he said.

Excessive growth in some sectors and areas was putting a strain on transportation and power suppliers, driving up the prices of raw materials, Zheng said.

Fan Gang, director of the National Economic Research Institute, said an overheating of some industries including cars, steel, aluminium, cement and the automobile sectors could have serious economic repercussions.

"If it is not cooled, the investment fever in some industries will greatly affect China's robust economic growth," Fan said.

Zheng said these issues have been the focus of the central government's attention.

Since the second half of last year, the central government has taken a series of measures to prevent the fixed asset investment from growing too much.

These measures include raising the bank reserve requirement, tightening loans to the steel, aluminium and cement sectors, and increasing management of development zones.

The measures will have a great impact on the fixed asset investment this year, said Zhang Liqun, a senior researcher at the State Council's Development Research Center.

"Fixed asset investment will slow down during the rest of this year," he said.

(China Daily April 24, 2004)