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.
 
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.
 
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.
 
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.
 
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.”
 
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.
 
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.”
 
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.
 
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."
 
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.
 
(China Daily October 27, 2004)