Profits up 28pc at industrial firms but analysts see slowdown ahead

PUBLISHED : Tuesday, 28 June, 2011, 12:00am
UPDATED : Tuesday, 28 June, 2011, 12:00am


Mainland industrial profits jumped 27.9 per cent to 1.92 trillion yuan (HK$2.31 trillion) in the first five months, but economists warn of rising uncertainties.

They warn of an increasing risk of slower growth as the central government looks set to again raise interest rates and the reserve requirement ratio to keep inflation at bay.

The National Bureau of Statistics yesterday said only two of all 39 industries did not record profit growth.

The best performers include companies in the chemicals and petrochemicals sector, with 57.4 per cent growth; chemical fibre at 56.9 per cent; and oil and gas exploration at 37 per cent.

But profits were halved at petroleum refinery, coking and nuclear fuel processing companies because they could not pass on rising input costs to downstream users.

Premier Wen Jiabao, who is visiting Britain as part of a European tour, yesterday said inflation remained stubbornly high and that consumer prices are likely to grow at 5 per cent this year, rather than the targeted 4 per cent.

Statistics Bureau data show raw material prices for aluminium alloy and some chemicals continued to climb by 1 to 2 per cent in the first two weeks of this month - though prices of certain kinds of steel and copper fell less than 1 per cent.

A Macquarie Research report said the central government's monetary tightening 'is biting' into economic growth.

According to China International Capital Corporation chief economist Peng Wensheng, interest rates will be raised by 25 basis points in the coming weeks and there will probably be further increases in the reserve requirement ratio - the funds that banks are required to set aside.

He estimates consumer price inflation could rise from 5.5 per cent last month to as high as 6 per cent this month on higher food prices.

An HSBC/Markit bi-monthly survey of the purchasing managers' index, called Flash PMI, showed that the recent growth in industrial activities tapered off to an 11-month low at 50.1 earlier this month, just above the threshold of 50. A reading above 50 indicates growth and anything below 50 denotes contraction.

Some economists said power shortages disrupted industrial production in Zhejiang, Hunan and Hubei last month, and would drag down industrial growth in the short term.

But many economists remain optimistic because industrial output grew at 14 per cent in the first five months and retail sales increased 16.6 per cent.


Profits fell this much in the petroleum refinery, coking and nuclear fuel processing industry