Chinese Industrial-Company Profit Growth Is Halved

By Nipa Piboontanasawat

Sept. 26 (Bloomberg) -- Chinese industrial companies' profits rose at about half the pace of a year earlier as raw- material costs climbed and economic growth cooled.

Net income increased 19.4 percent in the first eight months of 2008 to 1.87 trillion yuan ($274 billion), the statistics bureau said today. The gain was 37 percent a year earlier.

China's economy, the world's fourth largest, may keep cooling as a credit crisis undermines global growth, reducing demand for Chinese products. Oil refiners and processors of coking coal posted a 96.1 billion yuan loss for the period on higher costs, today's report showed.

``Profit margins are being squeezed,'' said Paul Tang, an economist at Bank of East Asia Ltd. in Hong Kong.

Electricity generators' profits slumped 81.6 percent, contrasting with a 142.8 percent gain for coal miners and a 54.7 percent increase for the oil and gas industry.

Crude oil jumped 33 percent in the past year. China Petroleum & Chemical Corp., Asia's biggest oil refiner, has reported a slump in profits on government price controls and record costs.

China's economy expanded 10.1 percent in the three months through June, slowing for the fourth straight quarter. In August, industrial production grew the least in six years because of weaker export demand, power shortages and factory shutdowns for the Olympics.

`Weaker Demand'

``Because of weaker demand in the U.S. and Europe, it has been difficult for Chinese companies to raise prices even as costs increase,'' said Tang.

Producer-price inflation quickened to 10.1 percent last month, the fastest pace since 1996.

The government cut borrowing costs this month for the first time in six years and has also eased lending restrictions on banks to stimulate growth and protect jobs.

``There's so much momentum in the Chinese economy that it's unlikely to be a serious slowdown,'' said David Cohen, an economist at Action Economics in Singapore.

Telecommunications-industry profits rose 18.2 percent, half the pace of the first five months. Net income among transport- equipment manufacturers climbed 35.1 percent.

Overall, industrial companies' sales increased 29 percent to 31.6 trillion yuan in the first eight months from a year earlier.

The figures are released quarterly. Today's increase in profits compared with a 20.9 percent gain in the first five months.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net;