The composite index measuring economic efficiency stood at 112.7 points during the January-March period, a drop of 0.6 percentage points from the same quarter last year.

"The decline was mainly a result of the price drop of oil and raw materials on the international market," said Qiu Xiaohua, deputy director of the National Bureau of Statistics.

The oil price on the Chinese market dropped a year-on-year 26.4 per cent, he said.

Net profits of industrial enterprises dropped 9.1 per cent to 79.92 billion yuan (US$9.6 billion) during the first quarter as a result.

The profits of the entire industrial sector dropped 8 billion yuan (US$963 million), while those of oil exploration and processing companies alone dropped a year-on-year 15.93 billion yuan (US$1.9 billion), Qiu said.

"The total deficit of loss-making companies reached 41.4 billion yuan (US$5 billion), representing a year-on-year increase of 14.4 per cent," Qiu said.

During the first three months, industrial enterprises generated 135.49 billion yuan (US$16.3 billion) in tax revenue - up 8.4 per cent year-on-year.

Despite the drop in profits, economist Hu Shaowei of the State Information Centre said the performance by the industrial sector was "better-than-expected."

Industrial output grew 10.9 per cent to 649.4 billion yuan (US$78.2 billion) during the January-March period.

Niu Li, another economist with the State Information Centre, said the rapid growth in industrial output is good news for the economy as this could boost general economic growth.

China has set an economic growth target of 7 per cent this year.

"The target is achievable because domestic forces will continue to have a great impact on the country's industrial sector and its economy as a whole this year," Niu said.

China will issue 150 billion yuan (US$18 billion) in treasury bonds for construction this year.

Direct beneficiaries of new construction projects are heavy industries, which sell more goods such as steel and cement.

"Fixed assets investment in China will play a decisive role in maintaining economic growth of 7 per cent," Hu said.

Experience gained from developed countries suggest that if a country's fixed assets investment grew at a higher rate, the country's gross domestic product (GDP) growth would be higher, he said.

China's fixed assets investment is expected to grow 11 per cent this year, Hu said.

Domestic consumption, which mainly benefits light industry such as air-conditioners and colour TVs, is also expected to grow 10 per cent.

(China Daily April 25, 2002)