Top Biz News

Soaring profits might prompt investment

By Zheng Lifei (China Daily)
Updated: 2006-07-21 08:47

China's industrial firms garnered a combined 810.7 billion yuan (US$101.4 billion) in profits in the first half of 2006, up 28 per cent from the same period a year earlier, the National Bureau of Statistics said yesterday.

The pace of industrial earnings growth accelerated from 25.5 per cent in the first five months, 22.1 per cent in the first four months and 21.3 per cent in the first quarter. This has raised concerns among some economists that the improved profitability might stoke already red-hot fixed asset investment growth if companies pour their profits back into expansion projects.

The robust industrial earnings growth, primarily driven by soaring profits in sectors such as non-ferrous metals, transportation equipment production and energy, is in line with the surging economy, which grew 10.9 per cent in the first half of this year.

The profits of non-ferrous metal firms rocketed 99.3 per cent in the first six months from a year earlier, while profits in the transportation equipment-making sector jumped 61.1 per cent in the same period, the National Bureau of Statistics said in a statement posted on its website yesterday.

The steel industry, buffeted by rising iron ore costs and declining steel prices, saw its profit dropping 20 per cent in the first six months from a year earlier, while the oil refinery and coking industry lost a net 27.7 billion yuan (US$2.8 billion) in the first six months of this year.

The industrial firms' rising profitability is raising concerns among some economists that it might spur companies to reinvest more of their earnings in fixed assets such as plants and equipment to fuel their future expansion, resulting in an upsurge in fixed-asset investment growth.