Industrial profit drop spurs rise in VAT rebates
Beijing announced new value-added tax refund rates for about 3,800 types of exports yesterday as data showed that profits of mainland industrial companies plummeted a record 37.3 per cent in the first two months of this year.
Profits fell to 219.1 billion yuan (HK$248.57 billion), the sharpest decline since the National Bureau of Statistics formed the economic indicator in 2006.
The drop in earnings has hit state-controlled and state-owned enterprises, co-operatives and foreign companies, including those from Hong Kong and Taiwan.
The bureau said several sectors including steelmaking, non-ferrous metals and fibre chemicals plunged into losses as sales slowed.
Economists viewed the results as fresh evidence of the continuing effect of the global economic downturn on mainland enterprises on top of the 43.7 per cent slump in the profits for about 140 state-owned enterprises in January and February.
'It was a surprisingly bad figure, and possibly it will get worse in the next few months,' said Barclays Capital head of China research Peng Wensheng of the industrial profits.
However, he added: 'As the mainland economy recovers towards the end of this year, the profitability of industrial firms will improve.'
Mr Peng estimated the mainland economy would grow 6.5 per cent this year, well below the central government's target of 8 per cent.
But he believed the latest export-friendly measures and the central government's 4 trillion yuan economic stimulus package would help shore up the performance of mainland enterprises.
The top losers in the first two months of this year were steel mills, which plunged into a 7.7 billion yuan net loss from a profit of 25.5 billion yuan a year earlier. They are followed by manufacturing and processing of non-ferrous metals, which lost 1.93 billion yuan against a 12.8 billion yuan profit previously.
Electricity producers fared relatively better, with profits down 77 per cent. Earnings of crude oil and natural gas producers were 86.1 per cent lower while those of petrochemical firms fell 49.3 per cent.
Banc of America Securities-Merrill Lynch economist Lu Ting blamed the falling profitability on sliding commodity prices. During the period, spot oil prices slumped 57 per cent while steel prices slid 20 per cent.
Weak oil prices would continue to haunt the profitability of oil and gas companies in the coming months, Mr Lu said.
Some economists pinned hopes of improved profitability on the central government's decision to lift VAT rebates on about 3,800 types of exports on April 1 in the latest measure to revive foreign trade.
The Ministry of Finance disclosed yesterday new rates for the rebates on textiles and garments, which will rise to 16 per cent from 14 per cent.
The rebates on certain plastic and wood products as well as glassware will increase to 11 per cent from 9 per cent.
Some exports will become VAT-free since the refund rates on cathode-ray tube colour televisions and some television parts and optic fibre will be raised to 17 per cent, which is the VAT level now.
Some steel products, construction ceramics and metal exports will have the VAT refund rate lifted to 9 per cent.