GUANGZHOU - The Chinese government is
expected soon to impose more macroeconomic control
measures aimed not only at cooling down the
heating economy but, more important, at what
Beijing sees as "unbalanced development" in the
country's industrial production. New statistics
show that a few sectors, mainly state monopolies
such as energy and raw materials, take the lion's
share of profits while others struggle for
survival as their profit margin becomes thinner
and thinner.
Despite Beijing's
two-year-old belt-tightening policy, China's
economy still grows faster than expected.
According to figures released by the National
Bureau of Statistics (NBS) on Tuesday, gross
domestic product (GDP) grew 10.9% in the first
half of this year. The growth rate was 0.9
percentage point higher than that in
the
same period of last year. By comparison, Premier
Wen Jiabao, in his Government Work Report to the
National People's Congress (NPC) in March, set 8%
as this year's growth target.
And a new
problem facing China's economic development is
that state-owned energy and raw-material
enterprises take the lion's share of profits of
China's industrial production, leaving processing
and manufacturing industries to struggle for
survival.
Qiu Xiaohua, the NBS chief,
earlier revealed that in the first five months of
this year, profits of all industrial enterprises
in China rose 25.5% from a year ago. However, he
pointed out that more than 80% of the increased
profits were grabbed by five major industries such
as oil, power, coal-mining, and non-ferrous
metals, most of which were state monopolies.
The remaining 20% of the increased profits
was shared by more than 30 other industries. Qiu
said this meant that the majority of industrial
enterprises in China were operating on the
borderline at the brink of losing money. He
believed that this problem has become a new source
of worry in China's economic development.
Data from the State-Owned Assets
Supervision and Administration Commission (SAAC)
further support the NBS statistics. SAAC oversees
the operation of 451 large state-owned enterprises
(SOEs), and its data show that the core business
income of all the 451 totaled 3.8 trillion yuan
(US$475 billion) in the January-May period, up 19%
from a year before. And the eight state
monopolies, including oil, petrochemicals,
telecommunications and electricity, reaped more
than 284.81 billion yuan in profits, which
accounted for 85.9% of total profits made by the
451 SOEs.
The data also showed the average
year-on-year profit growth of the 451 SOEs in the
first five months was 10.1%. However, apart from
the automotive industry, the other five industries
whose profits grew the fastest were non-ferrous
metals, electricity, machinery, oil and
petrochemicals. Both the NBS and SAAC statistics
strongly suggested that profits in industrial
enterprises has concentrated more and more in the
hands of a few state monopolies.
In Qiu's
analysis, this was mainly because there was a
scissors movement of prices between raw materials
and finished industrial products. He said the
average price increase of finished factory
products was only 2.6% in the first five months,
while the average price hike of raw materials
bought by the factory was 5.9%. Higher energy
costs due to a tight energy supply are the direct
cause of the erosion of corporation profits. In
the entire industrial chain, the surplus in
production capacity of the downstream enterprises
coupled with intense market competition greatly
lowers the viability of using price rises as a way
to compensate for increased costs. Under such
conditions, profits will shift to the upstream
energy enterprises via the said "price scissors".
As a result, production costs of
manufacturing enterprises across the country
increased by more than 100 billion yuan. Also,
processing and manufacturing industries in general
became overproductive, and intensified competition
has also narrowed their profit margins, according
to Qiu. He warned that the expanding scissors
difference between prices of raw materials and
downstream industrial products hindered the
healthy development of China's economy.
Analysts say that for many years, China's
processing and manufacturing industries have been
relying on low costs for their survival and
development. When the time comes that they can
make few or no more profits, they will try to
reduce or even stop production. This means
increased unemployment, a degrading of the labor
force and perpetuation of the crudeness of China's
economy. In the end, the concentration of profits
in the few industries backfires.
The state
monopolies not only create the "price scissors"
within the industries but also high salaries for
their employees. This has caught the attention of
the top officials of the central government. For
example, the yearly income of an ordinary staff
member in the power industry amounts to
80,000-100,000 yuan, that of middle-level
executives above 200,000 yuan. Extra hidden
allowances for payments such as telephone charges,
transport, guest entertaining, and lunch fees
amount to about the same proportion as the main
salary.
According to figures from the
Ministry of Labor and Social Security, the average
salary of the employees of the electrical power,
electrical communication, finance, insurance,
water and gas supply and tobacco industries is two
to three times that of other industries. If other
ex-salary allowances are also to be taken into
account, the actual income difference ratio can be
five to 10 times.
In short, state
monopolies are a cause of a widening wealth gap
that Beijing is worried could induce social
unrest.
Alerted by the problem, NBS and
the National Development and Reform Commission
(NDRC), China's top economic planning body, have
separately presented to the State Council their
analyses on economic development in the first half
of 2006, urging the cabinet to take measures. And
the China Securities Journal has reported that new
macroeconomic control schemes are expected to be
put forth aiming at correcting these imbalances in
China's present stage of economical development.
However, no details about such new measures have
been revealed.
Notwithstanding earlier
measures to cool the economy, such as
strengthening the controls on real estate and
urban infrastructure construction in 2005 and the
Central Bank's twice increasing banks' required
reserves, China's present state of economical
development is still overheated. According to data
published by the NDRC, investments in urban fixed
assets during this period amounted to 2.5 trillion
yuan (a comparable increase of 30.3%), in real
estate 565.8 billion yuan (an increase of 21.8%).
The corresponding increase in coal mining is
63.9%, in petroleum 8.3%, in metallurgical
industries 8.5%, in non-ferrous metals 23.0% and
in building materials 37.4%.
The latest
official figure of 10.9% GDP growth in the first
half of this year, which is higher than the
generally estimated 10.2%, suggests that Beijing's
two-year-old belt-tightening policy has not
brought the economy under its control. For this
reason alone, Beijing has to take more tough
macroeconomic control measures. Analysts,
however, point out that to rein in overheating
sectors is one thing, but to regulate the state
monopolies from reaping staggering profits is
quite another. And how the government could take
effective measures to control them remains
unsolved. Currently, the draft
Counter-Monopolization Law is under heated debate,
but the question of how to define monopolization
is still largely unanswered. What is more, how to
monitor the costs of an enterprise constitutes
another big problem. There are still technical
difficulties in deciding which part of the profit
is considered normal and which part of it falls
into the category of "staggering profit" obtained
solely via monopolization.
And in fact,
the prices of oil and electricity are set by the
NDRC, which also regulates the prices of many raw
materials. It seems that the simplest way to
narrow the scissors difference is for the NDRC to
lower oil and power prices. But then the
government suffers, analysts say. Some specialists
argue that the final solution is to break state
monopolies and privatize those industries.
David Pan is a freelance writer
based in Guangzhou.
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