China's 474 key state-owned enterprises (SOEs) reported a 42.1 percent profit growth in the first seven months of the year, statistics from the State-owned Assets Supervision and Administration Commission said Monday.

The growth rate was 11.7 and 3.5 percentage points higher than in the first quarter and the half year respectively. Total profits realized by these firms were 342 billion yuan (US$41.3 billion).

Meanwhile, their industrial output also surged by 27.5 percent during January and July to reach 2.6 trillion yuan (US$314 billion). The growth was largely contributed by enterprises in sectors of metallurgy, coal, machinery and petrol.

The 474 SOEs, which present a miniature of the Chinese economy, are mostly flagships of their industries, with comparatively higher profitability and bigger scale among all SOEs.

By the end of July, there were still 72 enterprises of the 474 recording losses, but the scale of losses had lessened by 72.4 percent compared to a year ago.

Among all the key enterprises, those in petrol and chemical, power and coal sectors posted the strongest growth in profits, fuelled by the price rally in energy products amid steady growth in the Chinese economy. Coal firms, for example, achieved profits that soared by 150 percent in the first seven months, backed by strong domestic demand.

The same reason also brought good business to transportation firms and helped them get back in the black. All together, they realized 22.8 billion yuan (US$2.8 billion) in profit during January and July, compared to 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 shed loss-making status.

But some analysts said that the staggering profit growth of these SOEs may slow down in the second half of the year as the impact of the State macro economic controls to cool down the economy take further effect.

The Chinese authorities have taken a series of measures to slow down economic growth since the second half of 2003, including higher reserve requirements for banks and tighter credit supply, especially in overheating sectors such as steel.

Already, key auto SOEs have had their profit decline by 10 percent in the first seven months year-on-year, compared to a 3 percent increase in the first six months.

However, there are still exceptions.

A newly released report by Tiantong Securities predicts that coal enterprises will remain a shining example the foreseeable future, in spite of macro economic curbs.

The shortage of such energy resources will remain a bottleneck in the Chinese economy, which is expected to stay on a steady growth track with greater demand for energy, so coal enterprises will continue to benefit from expected further price hikes.

(China Daily August 31, 2004)