PROFITS at H-share companies have been dropping, as a string of recent results shows. The most dramatic was Maanshan Iron & Steel (Magang) which on Thursday posted a fall in profit of 93 per cent to $37.25 million for the half-year to June 30. It blamed rising raw material prices and a move to making lower-margin products for the drop. On the same night, Shanghai Tyre & Rubber spun out with profits falling 73 per cent to $32.57 million. Raw material costs were also blamed. China Vanke, the property development firm listed in Shenzhen, on Tuesday reported a 24 per cent drop in profit to $630.77 million. Accountants Coopers & Lybrand have studied the trends and warned this week of more bad news to come. The recurring problems have dogged China's foreign-listed firms since they started to appear on exchanges in 1992 and 1993. Strict government credit controls in China tend to make problems of triangular debts - where firms pass on other companies IOU's instead of cash to settle bills - much worse. At the same time, there are big delays between the cash-raising exercises undertaken by H-share firms and completion of projects. Lack of infrastructure also holds back big firms. On paper, it all still looks great. Growth remains high and inflation is supposedly starting to fall. So where are the profits? They are being made by direct investors, stupid. China's growth has not been in horrible old basic industries like steel and rubber, but by new manufacturing investment, mainly in light-engineering processes in small cheap factories, turning out low-price products. CITIC Pacific demonstrated that not all the profit problems were in China, however. The firm managed to grow net profits to $1.4 billion for the first six months of the financial year, a jump of about 20 per cent - helped by growth at most of CITIC's main investments. Hongkong Telecom, Manhattan Card, Dragonair and Cathay Pacific have all grown. But the crash in car sales in Hong Kong did hold the firm back - Dah Chong Hong, the locally listed retailer, reporting a 44 per cent sales dip. Among smaller companies the ratio of improved results to falls was about 2:1. What is the problem? Not shortage of cash for investments. Most Hong Kong companies have very low gearing and big bank balances. Instead, it would seem to be a shortage of ideas, and almaost every day, this paper reports more companies buying back shares.. We are supposed to be the powerhouse for world economic growth, yet directors cannot seem to find anything better to spend shareholders' funds on than repurchasing and cancelling shares. This lack of imagination is profound. The making of profits in share trading by food companies and in property trading by retailers are other examples of firms too scared to commit to proper strategies. Even Hutchison Whampoa was not immune. It spent $174 million in the first six months of the year cancelling shares. And this from the company of the man credited with being the most creative in Hong Kong by the people of the territory. If the cash had been spent on Hutch's new telephone network, it probably could have been launched in July instead of October. Hutchison and Cheung Kong also reported results during the week. Hutch boosted its profits by 20 per cent to $4.48 billion, while Cheung Kong saw profits rise 33 per cent to $5.95 billion - respectable rather than dramatically surprising. The second half of the year is going to be less easy. Hutchison can expect a boost from the sale of the remaining stake in Star TV to Rupert Murdoch's News Corp. But property sales should be just about over for Hutch, and Cheung Kong will surely start to show the signs of falling prices at its major developments. We bet Microsoft supremo Bill Gates wouldn't spend any of his companies' money on repurchasing shares. Bill's big day was Thursday when Windows 95 was released. If you have spent the past three months under a rock, then Windows 95 is the long-awaited follow-up to Windows, a software suite for personal computers. Apart from being four times as long, Windows 95 has other important differences from Windows. Like, you probably need a new machine to run it on - or at least want to double computer memory. Windows totally dominates the PC world and Windows 95 will almost certainly continue this. Why? It is because of lock-in. Once a certain number of customers decide they want to use a product, it becomes the de facto industry standard. This is a lesson that Hong Kong business needs to learn. Investment does not mean a bag of Hongkong Land warrants and a punt on three strata titles. Investment is about making products which people want in an efficient way. Look around: Is that what is happening?