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State firms' profit decline slowing

By Si Tingting (China Daily)
Updated: 2009-07-22 08:05

Combined profits of State-owned enterprises hit 75.19 billion yuan in June, up 29.5 percent from May. [China Daily]

The combined profits of State-owned enterprises dropped by 26.2 percent in the first half of the year, but the rate of decline was moderating as a result of the improved economic situation, China's top asset watchdog said yesterday.

The 136 companies, largely composed of China's largest oil producers, banks, power generators, airlines and other heavyweights controlled by the central government, posted a total profit of 316 billion yuan ($46.26 billion) from January to June, Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), said in Beijing yesterday.

"The decline in profit growth is within expectations," Zhao Xiao, director of the Macro Economy Department of the Economic Research Center of the SASAC, told China Daily. Last year, these State firms recorded the first ever annual decline in profits since 2002, falling by more than 30 percent year-on-year, to 665.29 billion yuan.

As most of these companies were not run to full capacity in the first half of 2009 due to slackening demand and falling product prices, it was reasonable that their profits declined, Zhao said.

China's consumer price index (CPI), a main gauge of inflation, fell 1.1 percent in the first half of this year from a year earlier. Producer price index (PPI), a major measurement of inflation at the wholesale level, dropped 5.9 percent in the first half.

However, the profit decline was an improvement over the first quarter's more severe 41.8 percent contraction, said Li Rongrong. The SASAC said combined profit in June was 75.19 billion yuan, up 29.5 percent from May.

"The profitability of these State firms are largely determined by its unchallenged position as monopolies in some major industries, as well as by the entire economic situation, and therefore, when the economy recovers, their profits will go up," Zhao said.

China's 4-trillion yuan stimulus helped accelerate second-quarter economic growth to 7.9 percent over a year earlier, up from the previous quarter's 6.1 percent expansion.

Special Coverage: China Biz & Economic Statistics Related readings:  Profits of China's SOEs down 27% in H1  SOEs see revenue down 7.4% in first 5 months  Official urges tighter supervision of SOEs  Number of China's centrally-administered SOEs down to 136

As the beneficiary of this massive stimulus, State-owned firms have received a big share of the stimulus, which is meant to reduce reliance on exports by boosting domestic demand through higher spending on infrastructure.

"The downward trend seen in year-on-year growth may come to an end next year, or probably, in the fourth quarter of 2009," Zhao said. As State firms were the pillars of China's economy, their improved performance was a pointer that China's economy was recovering, he said.

"Before, our assumption of an economic recovery was largely backed by macroeconomic figures. Now, the improved company performance is solid evidence from the microeconomic level to back up our talk about recovery," said an unidentified analyst with China Merchants Bank.

Li Rongrong, head of the SASAC, said he appreciated the progress made in consolidation efforts by these State firms this year, as it improved their asset quality and competitiveness.

However, Li pointed out that these companies were still mired in some serious problems, such as the unsteady pace of recovery, out-of-date development strategy and blind investments.

The SASAC has planned to cut the number of major enterprises under its control to between 80 and 100 by 2010, compared to the 136 companies now.

A total of 24 central government-owned firms were listed on the Fortune 500 this year, five more than last year.