Profits at China’s state-owned enterprises poised to plunge further
SOE profits fell 9.8 per cent in the first 10 months of this year
China’s bloated state-owned enterprises, faced with crippling debts and soaring financial costs, are poised to see the worst profit plunge in three years.
And their earnings are expected to decline even further next year despite Beijing’s efforts to restructure the sector.
SOE profits fell by 9.8 per cent year on year to 1.88 trillion yuan (HK$2.27 trillion) in the first 10 months of this year, down from $2.08 trillion yuan in the same period last year, according to analysts from investment firm Reorient. Those in industries such as steel, coal and non-ferrous smelting are seeing losses rise rapidly, and analysts expect the trend to continue as government reforms to consolidate the sector fail to produce results in the short run.
“It will take a long time – you will not see the results in the near term,” said Ben Kwong Man-bun, executive director and head of research of KGI Asia. “You have to tackle this problem, otherwise it will eat up a lot of resources. It’s just like cancer – you have to kill [the problem].”
State sector profits plunged 21.5 per cent year on year in February to about 256 billion yuan, in what was the biggest year-on-year fall since 2009.
The main purpose [for SOEs] is to absorb the employment within the country
Louis Tse Ming-kwong, director of VC Brokerage, said energy sectors like coal mining were suffering because of China’s economic slowdown, excess supply, lack of demand and the shift away from traditional industries in the “old economy” towards the tertiary sector.