China's 189 central State-owned enterprises (SOEs) are expected to experience sharp profit growth in 2004, fuelled by the high market demand of energy and power.

However, these SOEs are being asked not to be complacent and are being urged to improve efficiency and competitiveness so they are sustainable in the long term.

It is estimated that these enterprises, the flagship of their industries, will realize profits of more than 380 billion yuan (US$45.9 billion) in the full year of 2004, compared to around 300 billion yuan (US$36.2 billion) last year, according to the State-owned Assets Supervision and Administration Commission (SASAC), the watchdog that acts as the State owner of the central SOEs.

In the first six months of the year, they already realized a combined 225.4 billion yuan (US$27.2 billion) in profits, a 38.6 percent growth year-on-year. The growth was largely contributed by firms in transportation, metallurgy, petrol and chemical and power sectors.

The central SOEs produce 97.5 percent of crude oil in China, 86.3 percent of freight turnover and 40.8 percent of power generation in the country.

Li Rongrong, minister of SASAC, said yesterday that rosy growth in profits and turnover of these firms laid a solid basis for the central government's macro controls and the overall economic development.

But behind these rosy figures are also structural problems they have to tackle, including a bottleneck in resources, excessive expansion in some industries and rising prices for production materials, which will start to exert a negative impact in the second half year, Li said at a work conference of the central SOEs yesterday in Beijing.

China's economic growth is expected to slow down mildly in the second half year and some overheating sectors will also cool down, said Li.

But the shortage of resources and energy, triggered by rapid economic expansion, will continue to exist for some time. China's coal reserve, for example, has already dropped to its lowest point in 20 years. Yet an expected increase in residential consumption of coal for winter heating will make the shortfall even bigger.

Power and petrol industries are also facing similar challenges, given the intensifying shortage of supply.

Li urged the major coal, oil and transportation companies to enhance capacity of production to guarantee market supply.

Meanwhile for other enterprises, they are also asked to enhance economic efficiency and core competitiveness to realize a sustainable growth in the long term.

Instead of simply pursuing a comprehensive business scale and a large size, they should try to build up stronger core businesses and gradually withdraw from side businesses in which they are not competitive.

Moreover, many are to pace restructuring to reposition themselves in the market place and introduce new expertise and investors.

Also, innovation is encouraged in the process, said Li.

SASAC has chosen seven big enterprises, including Baosteel, to each create a board of directors this year. Some central SOEs are also introducing the shareholding structure to pave way for an overall public listing.

Li said that the central SOEs are also encouraged to introduce more strategic investors or recruit senior executives from the labor market to improve management and efficiency.

A second round of an open recruitment campaign for the central SOEs organized by SASAC, which offers 23 senior management positions in 22 enterprises, has already attracted 937 applicants, including 16 foreigners, the commission announced yesterday.

Four large SOEs are offering positions like deputy general manager and chief accountant to foreigners.

More than 400 of the applicants will be qualified to take the written exam on Sunday.

SASAC organized first such a campaign to find the right talent for six central SOEs last year and more firms are expected to follow suit later on.

(China Daily August 14, 2004)