A review of industrial performance for the first 6 months

China's national economy has been running ahead steadily with sound industrial operation over the first half of 2005. The information made available by the National Development and Reform Commission has disclosed new characteristics and problems in the industrial operation. The changes and outlook of enterprises' economic performance in particular, among others, apparently deserve intensive attention.

slowed growth and widened gaps

According to the National Development and Reform Commission, an upward momentum continued for China's industrial economic gains throughout the six months from Jan. to June. However, the speed of the growth slowed down.

Industrial businesses made 626.6 billion yuan of profits, an increase of 19.1 percent which was 22.5 percentage points lower than in the same period of last year.

The widening gaps in economic performance and profits growth throughout the various sectors and regions constitute new features for the economic performance of the industrial economy.

Major industrial sectors failed to sustain their all-sided upswing which had lasted for two years in a row. Three kinds of situation have been perceived judging by the changes of their economic results. Fast-growing sectors enjoyed more than 30 percent rise. Coal, non-ferrous industry, metallurgy, and petro-chemicals scooped 300.5 billion yuan of total profits, accounting for 48 percent of the country's gross industrial profits. And their newly added profits made up 89.2 percent of the additional profits made by the country's industry.

Sectors progressing at a pace of 15 percent to 30 percent are defined as "steady growth". 149.8 billion yuan of profits were recorded for textiles, light industry, pharmaceuticals, and tobacco. This was 23.9 percent of the country's total industrial profits.

And there were sectors suffering profits decline. Construction materials, machinery, electronics and power industries saw their profits down by 22.1 percent, 7.6 percent, 5.5 percent and 4.4 percent respectively, leading to 14.7 billion profits reduction.

As far as different sectors are concerned, petrochemicals, electronics, construction materials and power industries were making more losses than the national average, whose loss-making tripled (petrochemicals) and increased by 76.6 percent, 66.1 percent and 62.2 percent respectively. With their losses rising 55 percentage points over the same period of last year, the four sectors recorded new losses of 28.9 billion yuan, creating 72.4 percent of total new losses in the country's industry.

Geographically, the gaps of profit growths were widened between the east, middle and west which reported 406.9 billion yuan, 128.2 billion yuan and 91.5 billion yuan of profits respectively, up 14.2 percent, 22.5 percent and 40.3 percent.

24 out of the 31 provinces, autonomous regions and municipalities were enjoying continuous profits increase. Shangdong, Jiangsu and Heilongjiang, the three of the five provinces which generated half of the national total profits, saw their profits soar between 24 percent to 48 percent, contrasting sharply against Guangdong's 4.4 percent rise and Shanghai's 16.3 percent decrease.

New problem: loss-makers making more losses

For the first half year, poorly performed enterprises made 107.5 billion yuan of losses, jumping 59.3 percent over the same period of last year. The pace, the highest since 1999, was 57.8 percentage points well above the same period of last year and 22.6 percentage points higher that in the first quarter.

Zhu Hongren, official with the economic operation division of the National Development and Reform Commission, gave four reasons for the slowdown of economic benefits growth in industrial enterprises.

He highlighted first the prices of raw materials, fuel and power, which were kept above the production prices for processing industry products since 2002. The disparity between them stood at 0.8, 4.6 and 6.6 percentage points respectively between 2002 and 2004, and further expanded to 7 percentage points in the first half of 2005. Given downstream sector's limited digestion capability for the lasting price hike in the upstream products, there was a transfer or readjustment of profits between the two.

The second reason Zhu mentioned is the overcapacity perceived in some sectors. In recent years, some sectors have expanded their production aggressively. As a result, new projects have been put into operation one after another. However, this coincided with the declining market demand due to the mitigated spree on fixed asset investment. The situation of excessive supply manifested itself gradually. This had led to intensified market competition, price cuts, shrinking profits and swelling losses. Business of aluminum, steel and iron, automobiles, chemical fiber and float glass sheet faced especially difficult time.

Business season also affected performance. The first quarter is normally the slack season for cement manufacturers. In 2004, the cement sector experienced breakneck expansion which was boosted by the investment and demand and made 3.1 billion yuan profits. But the effective control over the overheating business brought the sector back to the normal track and there was a 350 million yuan loss in the first quarter of this year, followed by a moderate comeback in the second quarter. The sector finally stopped bleeding in red in May and managed 1.76 billion yuan of profits for the first half of the year.

The last but not the least, the fluctuation on the world market. The sluggish international market dragged electronic exports down over the first 6 months. 4.5 billion yuan of profits was thus drained away, reflecting a 76 percent plunge.

Over the period starting from the 3rd quarter in 2002 till the 4th quarter in 2004, industrial profits secured a steady growth at a rate of 30 percent to 40 percent for 10 quarters. Given this, the downward movement in the first 6 months of 2005 can be viewed as being "reasonably back to normal". In addition, the 19.1 percent year-on-year increase was still high.

The National Development and Reform Commission also spotted out the imminent problems in the current situation, including the deteriorating performance of struggling enterprises, widening gaps among different sectors, and the lingering difficulties in business operation in some sectors.

The commission warned that a long-term existence or even worsening of these problems, if that would be the case in the days to follow, would not only influence the fast growth of the economy, but also give rise to social problems such as bankruptcy and mounting unemployment. This, the commission was worried, would in turn affect the sustainable, stable development of the national economy and therefore calls for high attention of various sides.

By People's Daily Online