06/30/2008, 00.00
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China’s industrial growth halved

“Only” +20.9% in the first 5 months of 2008, compared to +42.1% in 2007. Factors include January’s snow storm and the hike in the cost of energy and raw materials. Experts observe if inflation slows then Beijing will increase prices of products and services and the industry will take off once again.

Beijing (AsiaNews/Agencies) – China’s industrial growth has slowed dramatically, feeling the impact of rising prices for energy and raw materials such as steel, but also due to devastating January snow storms.  From January to May profits grew by a significant 20.9%, half of the incredible +42.1% profit margin registered over the same period last year.

Moreover official sources note that growth accelerated from March after January and February registered “only” 16.5%.  Economist Xing Ziqiang points out that during these months snow storms disrupted supplies and transport, blocking tens of thousands of workers in their homes for the Chinese Lunar New Year and closed several electric power stations.

The soaring cost of steel has also heavily penalised growth, up by 40% in 2008 thanks to the increase in iron ore, coal and electricity. Top steelmaker Baosteel Group's recent agreement with Australian miner Rio Tinto would see mainland steelmakers pay as much as 96.5 per cent more for contract iron ore, adding to the cost pressure on steelmakers.  Experts estimate that Steel-using industries on the mainland may have to bear an extra 800 billion Yuan in costs as steel prices soar, further fuelling inflation by accelerating the rise in production costs of downstream users such as carmakers, construction companies (over 60% of steel in China is used in construction) and electrical home appliance producers.

The combined net income of the companies rose to 1.09 trillion Yuan (HK.24 trillion) from January to May, while sales grew 29.3 per cent to 18.38 trillion Yuan. The data is conditioned by Coal companies' profits, which jumped 97.8 per cent in the first five months from a year earlier, while earnings at oil and gas companies gained 54.3 per cent.  However, oil refiners and power producers were hurt by soaring energy costs, as government controls over refined oil and electricity prices restricted how much of the burden they could pass on to consumers.

The oil refining and coking sector recorded 44.3 billion Yuan in losses between January and May, against a profit of 35.2 billion Yuan in the same period last year. Power generators' earnings fell 74%. June 20th the government increased fuel prices by between 16.7% and 18.1% and on July 1st the cost of electricity will increase by 4.7%, giving greater profits to these industries.

Frank Gong, the chief China economist at JP Morgan is optimistic: “As fuel and electricity prices have been raised and food inflation is slowing, it will provide room for other industries to raise their product or service prices”. Following the Olympics with inflation below 7%, new hikes in the cost of fuel and electricity are expected. (PB)

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