China's industrial sector is feeling the impact of the central government's measures to cool down the nation's overheating economy, with profit growth slowing during the first six months of this year.

The National Bureau of Statistics revealed that industrial firms' profits during the period had increased 41.6 per cent year-on-year, meaning that the growth rate was 2.1 percentage points lower than that for the first five months.

Industrial enterprises paid 412.4 billion yuan (US$49.7 billion) of taxes to the State in the first six months of 2004, an 22.3 per cent rise on last year.

Loss-making firms' losses increased 1.5 per cent, reaching 64 billion yuan (US$7.7 billion).

Wang Zhao, a researcher at the State Council Development Research Centre, said the slower profit growth suggests the central government's macro-control measures had started to take effect.

The central government introduced a host of measures from the second half of last year to try to cool down the nation's red hot economy, including raising bank reserve requirements on three occasions and curbing unwanted fixed asset investment projects.

"These measures should have a great impact on companies' profit growth," he said.

Niu Li, a senior economist at the State Information Centre, said a fast decline in fixed asset investment growth due to the macro-control measures led to a drop in overall demand, having an impact on company profits.

"A price drop in raw materials also led to a drop in the profit growth of those companies," he said.

Profits earned by the steel industry, a sector targetted by the government in its drive to cut investment, rose 80.4 per cent during the first six months of this year, 22.1 percentage points lower than in the first five months, the statistics bureau said.

And the cement industry's profits rose year-on-year by 298 per cent during the period. Its growth rate was 497 per cent in the first five months.

"The decline in the profit growth was in line with the country's current economic situation," Niu said.

Statistics bureau spokesman Zheng Jingping said last Friday that China's second quarter gross domestic product (GDP) rose 9.6 per cent year-on-year.

GDP also slowed down from its 9.8 per cent growth rate in the first quarter.

But Zheng said overall national economic performance was good.

"The national economy remained stable and witnessed fast growth, economic efficiency improved continuously and there was an obvious rise in people's incomes," he said.

Zheng pointed out that the uncertainties and unhealthy factors existing in economic performance have also been brought under initial control.

There will be no severe fluctuations in the Chinese economy, Zheng assured.

The government would continue to carry out macro-control measures in the second half of this year, he said.

But economists said the government should not take further tightening measures to cool down growth, because fixed asset investment, money supply and other indicators had slowed markedly.

Fixed asset investment declined 14.4 percentage points during the second quarter compared to the first quarter.

Broad money supply, or M2, rose 16.2 per cent year-on-year in June, according to the People's Bank of China, the nation's central bank. The growth rate was 4.7 percentage points lower than a year earlier, and 1.3 percentage points down from the previous month.

Zhang Xueying, another senior economist with the State Information Centre, warned that the rapid fall in fixed asset investment and money supply would have a negative impact on the national economy.

"I'm worrying about the possibility of an abrupt economic slowdown," he said.