The State Assets Supervision and Administration Commission (SASAC), which
directly oversees 169 central government-invested enterprises,
released half-year economic results for those in the
pharmaceutical, machinery, metallurgy and building material sectors
on August 1. Despite maintaining growth, they reported decreasing
profitability.
Pharmaceutical sector needs improving
All 23 pharmaceutical enterprises retained double-digit growth
in production and sales. However, their profitability was only
about one-third the country's total. Their sales revenue grew 11.4
percent over the same period last year, much lower than the sector
average of 21.18 percent. They reported a 0.8 percent decline in
profits, but the average profit growth was 19.84 percent.?
Rapidly increasing consumption and drug price adjustments last
year made their operations in the first half of 2005 much better
than last year. Zhang Shiyuan, a research fellow of Southwest
Securities, said these pharmaceutical manufacturers reaped over 25
percent growth in revenues and profits, driving up operations of
key enterprises and the whole sector.
However, Zhang warned that drug prices and foreign exchange
policies will be two important factors for the sector. The recent 2
percent RMB appreciation reduced their profitability by 10 percent,
while drug price adjustment remains a sword hanging over their
heads.
Manufacturers must grasp the opportunities of consumption
growth, accelerate adjustment of product mixes, and further control
costs and expenses, Zhang suggested. Only by boosting industrial
integration and avoiding unnecessary price wars can growth be
sustained, he said, also warning of related environmental
protection issues.
Machinery sector impacted by slowed
investment
In the first half of the year, the whole machinery manufacturing
sector retained steady growth on a high benchmark. All 50 state
firms achieved over 20 percent growth in production, sales and
profits.
Their combined industrial output was 123.18 billion yuan
(US$15.2 billion), up 23.2 percent and 3.6 percentage points on the
first quarter. Revenues from their main businesses reached 135.16
billion yuan (US$16.67 billion), up 20 percent. Their profits were
6.63 billion yuan (US$818 million), up 28.9 percent and 6.9
percentage points higher than the first quarter.
Wei Mingliang, a research fellow of Everbright Securities, said
their total fixed-asset investment in the first half of 2005
reached 3.2895 trillion yuan (US$405.8 billion), up 25.4 percent on
the same period last year. Due to this, the sale of engineering
machinery kept at a high level. Since the price of raw materials
was higher than the previous year, gross profits were decreased,
which slashed their profitability on a large scale.
Metallurgy sector: lagged effect to come
About 38 state-owned metallurgy enterprises maintained a
moderate growth in production, sales and profits after a period of
high-speed growth. In the first half of the year, they produced a
total industrial output of 449.44 billion yuan (US$55.4 billion),
up 34.4 percent, 17.6 percentage points lower than the same period
last year.
Revenues from their main businesses were 478.85 billion yuan
(US$59 billion), up 29.6 percent, 26.1 percentage points lower than
the same period last year. Their profits grew 27.1 percent to 44.47
billion yuan (US$5.48 billion), but their growth rate was down 69.1
points.
A research fellow of Haitong Securities, Yong Zhiqiang, believed
steel prices already reached the peak of an economic cycle in
spring 2005, so industrial profits might decline in the future.
While keeping production growing, the steel sector saw an abrupt
price hike and fall in the first half of the year. Yong said such
fluctuations will not appear in the latter half of 2005 and steel
prices will rebound slightly. A turning point for the sector has
already appeared and, with a lagging effect, will become more
apparent in the second half of the year.
Building material sector: tough tasks ahead
The 25 state-owned building material manufacturers achieved
industrial output of 25.29 billion yuan (US$3.12 billion) in the
first half of the year, up 15.4 percent on the same period last
year and 4.2 percentage points higher than the first quarter. Their
revenue reached 31.7 billion yuan (US$3.9 billion), 7.1 percentage
points higher than the first quarter.
However, the production-sales ratios fell 0.9 percentage points
to 95.9 percent. Their total profits were 0.99 billion yuan
(US$122.1 million), 61.4 percent lower than the same period last
year.
Zhou Huan, an analyst with United Securities, said the good
returns were due to growth in demand for building materials.
Currently, infrastructure construction and real estate development
are entering a busy season and flood-hit areas need immediate
reconstruction.
In the first half of the year, 457 million tons of cement was
produced, up 8.2 percent on the same period last year and 7
percentage points higher than the first quarter. The production of
plate glass reached 173 million boxes, up 14.5 percent on the same
period last year and 3 percentage points lower than the first
quarter. Despite that, demand growth in the second quarter should
improve the production -- sales ratio, but the sector still faces
severe profit decline.
Zhou attributed downward prices to the expansion of production
capacity while costs of coal and power have remained high in recent
years. Since real estate investment, influenced by macroeconomic
control measures, is expected to slow down in the latter half of
the year, profits for the building material sector are unlikely to
improve.
(China.org.cn by Tang Fuchun, August 8, 2005)