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SOEs Report Strong Profit Growth

China’s 474 key state-owned enterprises (SOEs) reported a combined 42.1 percent jump in profit in the first seven months of the year, the State-owned Assets Supervision and Administration Commission announced yesterday.

 

The growth rate was 11.7 percentage points higher than in the first quarter and 3.5 points over the figure at the half. Combined total profit was 342 billion yuan (US$41.3 billion).

 

Industrial output of the key SOEs surged 27.5 percent during January-July period to reach 2.6 trillion yuan (US$314 billion). Most of the growth was contributed by enterprises in the metallurgy, coal, machinery and petroleum sectors.

 

The 474 key SOEs are mostly flagships of their industries, larger and with greater profitability than their non-key counterparts.

 

By the end of July, 72 of the 474 enterprises were still recording losses, but they had shrunk 72.4 percent year-on-year.

 

SOEs in the petrochemicals, power and coal sectors posted the strongest profit growth, fueled by the price rally in energy products amid steady growth in the overall economy. Coal firms saw profit soar150 percent in the first seven months, backed by strong domestic demand.

 

The operating environment also helped to bring transportation enterprises back into the black. They realized a combined profit of 22.8 billion yuan (US$2.8 billion) in profit in the January-July period, compared with 2.4 billion yuan (US$283.8 million) in losses in the same period a year ago.

 

Meanwhile, enterprises in the rail and electronics sectors also managed to climb out of the red.

 

However, some analysts are saying that this staggering profit growth may slow in the second half of the year as state macroeconomic controls continue to have a harnessing effect.

 

The authorities have been applying the brakes to economic growth since the second half of 2003, with such measures as higher reserve requirements for banks and tighter credit supply, especially in overheating sectors such as steel.

 

Already, key auto SOEs saw profit slip 10 percent year-on-year in the first seven months, compared to a 3 percent increase in the first six months.

 

But there are exceptions to this projected trend. A newly released report by Tiantong Securities predicts that coal profits will continue to stack up in the foreseeable future, in spite of macroeconomic curbs.

 

Energy shortages are expected to remain a bottleneck. Overall economic growth is expected to stay on course, which means demand for energy will continue to rise, pulling coal enterprise profit up along with it.

 

(China Daily August 31, 2004)

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