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Industrial-company profits climb 42 percent

By ()
Updated: 2007-06-27 16:36

China's industrial-company profits swelled 42.1 percent in the first five months from a year earlier, hampering government efforts to cool investment in the world's fastest-growing major economy.

Combined net income increased to 902.6 billion yuan (US$119 billion), the National Bureau of Statistics said today. Sales jumped 27.4 percent to 14.2 trillion yuan, Bloomberg reported.

Premier Wen Jiabao is trying to prevent a rebound in factory investment that would increase the risk of overcapacity. Besides curbs on bank lending, the government has ordered state companies to start paying dividends to trim the money available for investment.

"The strong growth will fuel increased investment," said Qu Hongbin, chief China economist at HSBC Holdings PLC in Hong Kong. "Monetary tightening needs to be continued."

The government announced the trial dividend program last month. China has also tightened project approvals, curbed land use, increased energy costs, and cut export rebates. The central bank has raised interest rates twice this year.

Wen on June 14 highlighted the risk of a rebound in fixed-asset investment and signaled monetary tightening is likely.

Chemical-fiber companies' profits more than tripled, while those of steelmakers more than doubled.

Tangshan Iron & Steel Co, a unit of China's second-biggest steelmaker, may report an 80 percent increase in first-half profit from a year earlier, the company said previously.

Coal companies' profits jumped 43.1 percent from a year earlier, while those of businesses manufacturing construction materials soared 70.1 percent.

The government last month started a campaign to cool excess growth in industries including iron, steel, copper, aluminum, zinc and cement that pollute and consume energy heavily.

Industrial companies' profits rose 43.8 percent in the first two months, the most recent previous figure released by the government. They climbed 25.5 percent in the first five months of last year.

China's economy, the world's fourth largest, grew 11.1 percent in the first quarter from a year earlier, up from a 10.4 percent expansion in the previous three months. Officials are concerned that an investment boom in stocks, factories and real estate, fueled by cash from record trade surpluses, may end in an abrupt economic slump.

Factory and property investment jumped 25.9 percent in the first five months from a year earlier, accelerating from the 25.5 percent growth through April.

Wen said two weeks ago that he's concerned by "rapid growth in industrial production and the trade surplus, fast investment growth, excessive liquidity, increasing inflationary pressure and energy conservation challenges."

The government is trying to curb the economy's dependence on exports and investment by boosting domestic consumption. The trade surplus surged 73 percent in May from a year earlier to US$22.5 billion.

China raised the benchmark one-year lending rate to 6.57 percent on May 18 and increased the deposit rate to 3.06 percent. The central bank has also ordered lenders to set aside more reserves five times this year.

Today's figures reflect operating profits, and don't include stock-market investment gains, according to Grace Ng, an economist at JPMorgan Chase & Co. in Hong Kong. The numbers are for all State-owned industrial companies and others with annual sales of at least 5 million yuan.


(For more biz stories, please visit Industry Updates)


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