BEIJING, August 24 — Industrial profits soared to nearly a trillion yuan in the first six months of 2006, according to figures released by the National Bureau of Statistics (NBS), with petroleum and natural gas exploitation sector profits rising 44.8% against an average of 28.6% across the 39 sectors surveyed.
Figures show that while profits from the smelting and processing of non-ferrous metals doubled against the same period in 2005, steelmakers saw a 10% decline. Refiners and coke smelters also lost out, most likely due to high energy prices, with a loss of RMB32.7 billion (US$4.2 billion) from January to July.
China’s Petroleum & Chemical Corp (SINOPEC), for example, says its refining business lost over RMB16 billion in the first half of 2006, up from just RMB1.3 billion from the same period last year. But significant rises in crude oil revenues and exploration businesses, together with a boost from the government in the form of fuel price hikes, saw the Chinese oil giant post a 20% rise overall for the second quarter. Nevertheless, analysts quoted on Bloomberg say the government should further prop up the refining business.
“The government has to make sure that the refiners can make money,” said Liu Yang, who helps manage US$3 billion of Asian assets at Atlantis Investment Management in Hong Kong. “The liberalization of oil retail pricing is underway and this is the trend, to match international prices.”
“SINOPEC really suffered in the refining side,” said Lorraine Tan, director of research at Standard & Poor’s Investment Services in Singapore. “I don’t think the government will have refiners suffer losses all the way through, otherwise, you won’t get the capacity increases that they want.”
Meanwhile the transportation equipment market saw a 55.6% increase, and electric power 35.6% increase in profits.
According to the NBS, private enterprise grew profits faster, at 53.8%, than state-owned or state-run enterprises, which saw steadier growth at 19.8%.
The NBS surveyed all industrial enterprises with annual sales income over RMB5 million. Total profits reached RMB967.9 billion, a year-on-year rise of 28.6%.
The fast pace of growth shown by the NBS figures may cause concern with government officials charged with slowing the economy. Earlier this month, head of the State Environmental Protection Administration (SEPA), Zhou Shengxian, reiterated the country’s fast growing SO2 emissions were due to the fast pace of fixed-asset investment and lax environmental controls. SEPA is getting tough, he says, and China will no longer pursue economic growth by sacrificing the environment.
The government has already introduced a windfall tax on high oil profits to curb unsustainable oil industry growth – SINOPEC says it paid RMB3.65 billion in the first six months of the year and says full-year payments may reach RMB10 billion. But these latest profit figures show the efforts to cool economic growth are having little effect yet.