Guangdong GDP up, but profits ease

PUBLISHED : Friday, 22 July, 2005, 12:00am
UPDATED : Friday, 22 July, 2005, 12:00am

The profitability of Guangdong businesses dropped off significantly in the first half of the year but the region's gross domestic product continued to rise at a steady clip, according to preliminary data released on Wednesday.

Between January and June, Guangdong's GDP grew by 12.6 per cent year-on-year to 890.6 billion yuan, a rate Guangdong authorities described as sound, moderate and effective.

The increase was fuelled by expansion in the agricultural, foreign trade and infrastructure sectors.

But the data indicated that total profits for Guangdong businesses with annual sales of at least 5 million yuan had risen by just 4.4 per cent in the first half of the year, a fall-off of 31.5 percentage points from the first six months of last year, according to the Nanfang Daily.

At Shenzhen Zaifeng Electric Tools Corporation, manager Deng Jie said the slowdown in his company's profitability was remarkable.

Mr Deng said transport costs had increased 20 per cent, labour costs had doubled and raw materials were 60 per cent more expensive than they were three years ago.

'Nearly 70 per cent of our goods have depreciated [in value] due to fierce competition and at present we can only maintain a profit rate of about 15 per cent, compared with about 50 per cent in the past,' he said. 'All we can do now is ramp up new production to ease the drop in profits.'

Wan Qingtang, manager of Guangdong Yulan Decorated Materials Company in Dongguan , said that as with many businesses in the region, the cost of energy, transport, labour and raw and processed materials had eaten into profits.

Ding Li, a professor with the Social Science Academy of Guangdong, said the slowdown in industrial profitability was a reflection of faults in Guangdong's economic growth model which was still largely based on labour-intensive industries.

Professor Ding said that with fierce competition coming from other coastal areas, especially from the Yangtze River Delta, Guangdong was no longer the dominant production centre.

'Production costs in Guangdong are higher than other places and this has resulted in a setback in the profit rate for enterprises.'

He said Guangdong should focus more on technological innovation to maintain growth.

The data also showed that agriculture output was worth an estimated 75.4 billion yuan in the first six months of the year, 4.3 per cent higher than the same time last year.

Total investment in infrastructure amounted to 93.4 billion yuan and total foreign trade volume rose 17.5 per cent to US$187 billion.