The State asset regulator yesterday urged State firms to take
preemptive measures to ward off potential risks from the expected
macroeconomic tightening.
State firms should adjust their development strategy and map out
countermeasures in accordance with changes in interest rates of
bank loans and raw material prices, Li Rongrong, minister of the
State-owned Assets Supervision and Administration Commission
(SASAC), told heads of the 152 central enterprises, or those
administered by the central government, at a meeting in Beijing
yesterday.
Prices of raw materials have been rising steadily, pushing up
company's costs. Energy and resources prices are also expected to
rise, adding to cost pressure. The central bank has raised the
interest rate of loans five times this year.
The tone-setting Central Economic Work Conference early this
month said the country must prevent the economy from overheating
and the price rises from evolving into entrenched inflation.
Analysts said it sends a strong signal of credit tightening next
year.
Li said the financials of some central enterprises are not sound
enough to weather the potential risks.
Sixty-five central enterprises' asset-liability ratio, a gauge
of corporate ability to pay back their debts, rose during the
January-November period compared with the same period last year, Li
said, adding that a few firms have relied too heavily on bank loans
for their expansion, which has incurred potential financial
risks.
The profit-making ability of some central enterprises may not be
sustainable and budgetary management of some firms needs to be
strengthened, he said.
"Those problems... mean life or death for enterprises."
China's expected macroeconomic tightening could start with
commercial banks, which may lend 17 percent more than last year,
according to estimates by economists. If a credit crunch occurs,
bank loan growth rate may be reduced to as low as 13 percent and
the corporate sector will face a severe test, they said.
Central enterprises have registered impressive balance sheets.
They reported annual profit growth of 31.7 percent year-on-year in
the first 11 months of the year to reach 918.66 billion yuan,
according to Li.
Total revenue amounted to 8.72 trillion yuan in the same period,
up 20.5 percent. Li said revenue might reach 9.6 trillion yuan for
the whole year, an annualized increase of 20 percent.
Given their enhanced financial prowess, the recent plan to
require central firms to pay dividends to the government on last
year's net profits will not seriously affect their performance, Li
said.
China announced last week that State-owned companies in the oil,
power, telecommunications, coal and tobacco industries would have
to pay a dividend of 10 percent of their profits to the government
starting next year. Those in competitive sectors would pay 5
percent.
(China Daily December 19, 2007)
