China SOEs see double-digit profit decline by Nov

Profits of China's state-owned enterprises declined for four consecutive months since August, due largely to high stockpiles and weaker demand during the global financial crisis.

State-owned enterprises nationwide saw 19.09 trillion yuan (US$2.79 trillion) in business revenues between January and November, a growth of 20.3 percent year-on-year. But the growth was 3.1 percentage points lower than the January-October period.

The total included 1.2 trillion yuan in profits, down 15.7 percent from the same period last year. The decline rate was 7.4 percentage points bigger than the January-October period.

The downward trend was led by the power, nonferrous metal and automotive sectors.

The slowdown for heavy industries was not as serious as light industries, but the impact from the financial crisis has been transferred to heavy industries at a quicker pace than expected.

In August, when light industries had output value growth slowed to 11 percent, the heavy industry still kept a growth of more than 13 percent. However, the output value growth for heavy industries slowed to 7.3 percent in October, then to 3.4 percent in November.
An unsatisfactory performance by the light industry helped diminish demand from downstream sectors for heavy industrial products.

The third quarter of next year, state-owned enterprises would begin to step out of the shadow of the financial crisis, acording the China gouvernment.
An unsatisfactory performance by the light industry helped diminish demand from downstream sectors for heavy industrial products.

Moreover, upstream enterprises rushed to buy more raw materials when prices rose weeks earlier and it took time for them to eat up those overstocks.

Recent government economic stimuli, more money will go towards capital construction, would help heavy industries to recover faster than the light industry.

After 10 years of discussion and planning, China will launch fuel tax reforms in the New Year, part of an effort to streamline its price systems.

It will be just the latest market-oriented major policy move that China has undertaken in its three decades of reform and opening up.

Last week was the 30th anniversary of that drive, and during those three decades gross domestic product (GDP) grew by more than 9 percent on average annually, a rare feat in global economic history.
But the celebration of these achievements was overshadowed by the world financial crisis, which is deepening and spreading globally, devastating financial systems in developed countries and darkening world economic prospects.

Many economists and commentators have expressed worries that China might overreact to the crisis and veer away from reform and opening up. For example, this point of view was expressed by Fred Hu of Goldman Sachs, who wrote in the Wall Street Journal Asia of the "danger" that "Beijing is extracting the wrong lesson from recent events at home and abroad."

Judging from China's recent macroeconomic moves, especially speeches by its top leaders, it is unlikely that China will change course.

At a ceremony on Thursday marking the 30 years of reforms, President Hu Jintao attributed all the country's achievements in economic and social development to the policies, which he vowed to continue.

"The experience of the past three decades tells us," Hu said, that "the decision to adopt reform and opening-up has been in agreement with the people's thoughts, compatible with modern tides, and completely right."

The just-concluded Central Economic Work Conference stressed that China must stick to the basic principles of building a socialist market economy and opening up to the outside world.

China deeds match its words. In November, when the economy felt the chill of the financial crisis, the State Council decided to invest 4 trillion yuan (about US$588 billion) by 2010 to stimulate domestic demand and maintain GDP growth at 8 percent.

China's economy heavily depends on exports, and so far the most serious impact of the crisis on China is shrinking external demand. The government has recognized the danger of over-reliance on exports and has been making efforts to transform the structure of economic growth.

Seen in this light, the crisis is more of an opportunity than a risk. The freshly promulgated policies indicate that the government is paying serious attention to stimulating domestic consumption, especially in rural areas. This move can also narrow the gap between rural and urban areas and income groups.

There is no sign that China will let up on reform. For example, the fuel tax reform, which is to be implemented on January 1, is actually a bold attack on the last two price strongholds that are still under the strict control of the government: fuel and electricity.