The rate of profit growth experienced by China's industrial
sector picked up significantly in the first nine months of 2004, a
clear indication that the country's fixed asset investment and raw
materials prices might further rebound.
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The National
Bureau of Statistics said Tuesday that industrial companies
earned 808.8 billion yuan (US$97.4 billion) in profits in the
period, an increase of 39.8 percent on the same period of the
previous year. The growth rate was 1.3 percentage points higher
than that for the first eight months of the year.
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Zhang Xueying, a senior economist with the State Information
Center, said the recovery in industrial firms' profit growth was
mainly due to the rebound in fixed asset investment and raw
materials prices.
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Fixed asset investment grew 18.3 percent year-on-year in May, due
to government measures to cool the economy down. But it then saw a
dramatic upturn, to more than 30 percent in July. Figures for
August and September have not yet been released.
China's fixed asset investment had grown rapidly since the
second half of last year, rising to 53 percent during the first two
months of 2004. The government, concerned that excessive growth in
some sectors and areas could have a serious impact on the economy,
responded with a raft of measures to try to cool it down.
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Zhu Jianfang, an economist at Beijing-based China Securities, said
the rebound in fixed asset investment was a result of the
government's more recent policy changes. "While continuing to curb
investment in red-hot sectors such as cement and steel, the
government has increased investment in bottle-neck sectors such as
energy and transportation," he said. "The government should be
alert of a further rebound in fixed asset investment.”
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Niu Li, another economist at the State Information Center, said the
government should also be alert to further price rises, because the
price pressure was already very big. "While food prices remain at a
higher level, the international oil prices rise rapidly," he
said.
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The international oil prices rose to more than US$55 per barrel
during the past several days. Niu added, "There are also signs that
the raw material prices may be rebounded. The price rise would have
a certain negative impact on ordinary people's lives.”
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Chinese people have already suffered from negative interest rates.
"Negative interest rate will result in people having lower
expectations for the future," said economist Qi Jingmei, also from
the information center.
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A negative rate also leads to a decline in bank deposits, she
continues, "This will make people's purchasing power drop. Some
low-income families have even begun to worry whether their incomes
are able to meet basic needs for food and clothing. Their health
could also be at risk, because they will buy the cheapest products
and not pay much attention to the quality of food."
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The impact of the price rise has been greater in rural areas;
although farmers' per capita cash income rose 11.4 percent
year-on-year during the first three quarters of 2004, retail sales
in rural areas grew only 9.9 percent. The growth rate was 4.7
percentage points lower than in urban areas.
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(China Daily October 27, 2004)
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