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Top State Firms See Big Profit Hikes

China's major State-owned enterprises maintained a sharp profit growth in the first three quarters of the year, fueled by strong performance of oil, power and transportation sectors.

The 474 key State-owned enterprises (SOEs), the flagships of their industries, earned 460 billion yuan (US$55.6 billion) in profits in the first nine months of 2004, a 44.9 percent increase on a year-on-year basis.

The growth rate was 6.3 percentage points higher than that of the first six months, according to statistics released on the website of the State-owned Assets Supervision and Administration Commission (SASAC) Monday.

These enterprises also saw a 28.5 percent increase in industrial output, which totaled 3.4 trillion yuan (US$410.6 billion) in the first three quarters.

The best performers were transportation and coal enterprises, which grew 8.8 and 1.6 times. Meanwhile, those in petrol and chemicals, grew 54.6 percent and metal, at 84.5 percent.

They jointly contributed about 78 percent of the overall profit growth of the 474 key SOEs.

These sectors have benefited from growing demand fueled by strong economic growth and steady price growth, analysts said.

The major oil companies, all big State-owned enterprises, for example, have made significant gains from the high oil prices. And the good profitability is expected to be maintained, said Paul Coughlin, managing director of Corporate & Government Ratings for the Asia Pacific Region of Standard & Poor's.

Similar trends also apply for other companies in upstream businesses, including mobile and steel.

While downstream industries are expected to be affected by the high commodity prices, which would squeeze their profit margin, Coughlin said.

Standard & Poor's also predicted that the growth in the corporate profitability of the big Chinese companies would remain strong for the whole year of 2004, though it should slow down moderately in 2005 as the economy cools down.

Meanwhile, some industries are also expected to intensify their restructuring.

Auto businesses, for example, are to consolidate further, which would see the closure of more small-scale and less profitable companies into a few big groups.

Auto companies generally saw a profit decline in the first three quarters, as a result of price cuts, overcapacity and tightened credit policies by the government to curb over-investment.

(China Daily November 2, 2004)

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