Industrial firms post 37pc surge in profits

PUBLISHED : Friday, 28 September, 2007, 12:00am
UPDATED : Friday, 28 September, 2007, 12:00am

Mainland 'at the peak of corporate performance'

Profits at mainland industrial companies surged 37 per cent to 1.56 trillion yuan in the first eight months, powered by the country's demand for minerals and other commodities to fuel its soaring economic growth.

Turnover of industrial firms' core business jumped 27.4 per cent to 24.5 trillion yuan, the National Bureau of Statistics said yesterday on its website.

Profits at state-owned industrial companies rose 31 per cent to 680.7 billion yuan while those at joint-stock companies rose 34.5 per cent to 839.6 billion yuan, it said.

'Overall the profit margins are not equally distributed between the upstream and downstream companies but without any question, China is enjoying the best period of corporate performance as far as profitability is concerned,' Credit Suisse chief economist Dong Tao said.

Fuelled by consumption of metals, coal and cement to meet rising demand of homes, cars, machines and infrastructure projects, the mainland's industrial output jumped 18.4 per cent in the first eight months from a year earlier, accelerating from 16.6 per cent in all of 2006.

Earnings at chemical fibre, steel, power, coal and construction companies had the fastest growth of all 39 sectors in the first eight months, the statistics bureau said.

Apart from the higher consumption, which enabled companies to increase prices, observers said investments in technology and the improvement in management led to higher productivity and helped profitability growth.

'The gains in productivity have enabled Chinese companies to offset higher wages and hefty input cost,' said Jing Ulrich, JPMorgan's chairman for China equities.

The government-led efforts to merge smaller firms in key sectors such as coal, steel and construction materials to cut pollution and increase efficiency also helped profits at larger players, economists said.

'The emerging leaders have stronger pricing power than they did when they were competing against small players that were essentially not paying pollution costs,' Ms Ulrich said.

Economists said despite higher profitability, the government had no need to issue new austerity measures in the industrial sector as long as the earnings were not driven by gains from the stock and property markets.

Deutsche Bank chief economist Ma Jun expected profits at industrial companies to grow at 35 per cent for the whole year, up from 31 per cent last year.

'The only risky factor in demand is from exports but the slowdown of a single sector will not pull down the pace of the overall level,' Mr Ma said.

Beijing in July slashed and scrapped tax rebates on a wide range of export goods such as metals, plastics, textiles and furniture as part of efforts to reduce the country's trade surplus, soothe trade friction with importing countries such as the United States and in Europe and reduce pollution.