Bright future ahead?

Chinese SOEs are still dwarfed in strength and core competitiveness when compared with multinationals and first-class international companies, said SASAC head Li Rongrong. He cited development imbalance among these enterprises, even within a single enterprise.

Nearly 70 percent of aggregate profits were generated by nine leading enterprises, including China Mobile, China National Petroleum Corporation, China Baosteel and the State Grid in 2006.

Corresponding information for this year was not revealed by the SASAC. It only said that shipbuilding, automotive and shipping enterprises were becoming new, significant profit earners, joining those in the petroleum, power generation and telecom sectors.

However, Li did express concern over the financial conditions of central SOEs at a working meeting recently held in Beijing. "Profitability of some enterprises was not well-grounded as their profits were concentrated in a few subsidiaries. Some enterprises reported a lower profit rate in core businesses compared with a year earlier," he said.

About 31.2 percent of newly-earned profits of central SOEs were in the category of non-regular revenue. "This non-regular revenue usually comes from return from investment in other than core businesses, largely investment in securities," said Liu Cheng, a University of Science and Technology Beijing professor.

Yet, experts believed the growth of enterprises was undoubtedly behind the profit surge of central SOEs, and investment returns from securities had made limited contribution to their profitability.

Profits earned by central SOEs have been increasing steadily since 1998, and there was no such fluctuation as to copy that of the stock market, said World Bank (WB) economist Zhang Chunlin.

SASAC's Li also pointed out some SOEs relied too heavily on bank loans to expand their businesses. This increased their exposure to financial risk. The SASAC statistics showed that 18 enterprises expected to cover more than 70 percent of their investment budget with bank loans.

"These are 'life and death' issues of enterprises, and they deserve due attention from top management," Li said.

Experts also worried whether China's central SOEs could continue to increase profits in coming years.

Profit rise could continue into the next one or two years, however, key profit earners such as heavy chemical sectors could be strongly hit by competition from the private sector and foreign investment in future, said Zhang Wenkui, a researcher with the Development Research Center under the State Council.

The WB's Zhang expected a downward adjustment in profits of central SOEs if China should raise prices of natural resources to a higher level, as a big proportion of their profits were based on underestimated costs for natural resources.

Li said SASAC would further deepen reforms to build a modern corporate system into central SOEs in the coming year, upholding the goal of building "larger and stronger" individual enterprises.

The SASAC planned to cut the number of SOEs under its supervision to less than 100 by 2010. At the same time, it would get 30 such enterprises ranked among the world's top 500 companies by 2015 at the latest, up from 16 for 2007.

Despite arguments saying large and well-performing SOEs should get listed on the domestic market to avoid sharing profits with foreign investors that were largely a result of government support and monopolized access to state resources, Li said SASAC encouraged qualified SOEs to list as a whole in 2008, and to list on both domestic and overseas markets.