The data released by the National Bureau of Statistics (NBS) on Sept. 28 showed that state-owned holding enterprises realized a total profit of 756.42 billion yuan for the first eight months of this year, down by 24.7 percent year on year. Meanwhile, profit growth rate of state-owned enterprises (SOEs) was lower than any other types of enterprises again, making the SOEs record negative growth. it also has certain impact on the economic growth goal of this year.
Hu Baoliang, deputy director of the Economic Projection Department under the National Information Center, stated in an interview with National Business Daily that “Based on current situation, it is a great possibility that the GDP growth rate may slip under 7 percent in the third quarter. As pillar of the national economy, the SOEs must accelerate the steps for reform, especially to clear up a series of SOEs without hopes to stop losses, and improve the SOEs efficiency through mixed ownership system reform.”
Energy and chemical industry dragging down
Profit growth of the SOEs and state holding enterprises has obviously declined since this year. The data from the NBS also showed that state holding industrial enterprises above the designated size have realized a total profit of 598.02 billion yuan from January to June, down by 21.2 percent year on year. The decrease expanded to 22.1 percent and 24.7 percent for the first seven months and the first eight months, respectively.
The SOEs suffered greater declines in profit growth for months compared to that of other types of enterprises. Under the same macro-economic environment, the total profits of collectively-owned and joint-equity enterprises decreased by 0.3 percent and 1.7 percent respectively from January to August. While private enterprises recorded a total profit of 1,331.94 billion yuan, representing a year-on-year growth of 7.3 percent.
Zhu also said in the interview that “SOEs account for a large proportion in the industries with excess capacity, including steel, coal and non-ferrous metals, and such industries are main factors to lower the SOEs profits. In addition, the SOEs are not as flexible as the private enterprises, requiring more time to adjust the structure.”
The journalist found that industrial factors have obvious impact on declines in SOEs profits. The data of the NBS showed that the total profit of coal mining and washing industry has dropped by 64.9 percent year on year since January to August of this year, with a year-on-year decline of 67.3 percent in petroleum and natural gas exploitation industry, a year-on-year decline of 8 percent in non-ferrous mineral industry, a year-on-year decline of 51.6 percent in ferrous metal smelting, rolling and processing industry, a year-on-year decline of 3 percent in special-purpose equipment manufacturing industry and a year-on-year decline of 4.5 percent in automobile manufacturing industry. Petroleum and natural gas extraction industry suffered a year-on-year drop of 72.2 percent in August, with the decrease expanded by 16.6 percentage points compared to that in July. The automobile manufacturing industry also suffered a year-on-year decline of 22.1 percent in August.
In terms of main reasons for expanded decreasing amplitudes of industrial enterprises in August, Dr. He Ping in the Industry Department under the NBS explained that: 1) cost growth rate was faster than that of sales; 2) decreasing amplitude expanded in prices; 3) promoting effect on profits from investment returns obviously weakened; 4) due to exchange losses, financial expense increased rapidly; 5) industrial profits obviously declined, involving the industries of petrol, automobile, chemical and etc..
Authorities require clearing up “dead” enterprises
Decreasing profits also force the SOEs to accelerate the structural adjustment. Currently, the top scheme for SOEs reform has been confirmed, with related supporting measures gradually taken.
Zhu also told the journalist: “Based on reform scheme, there is a confirmed direction to stop the declines in profits that SOEs should be divided into types of public-benefit and commerce. And commercial SOEs without hopes to stop losses or make profits should be transformed, upgraded or even cleared up.”
Guidelines on Deepening SOEs reform issued by the Central Committee of the Communist Party of China and State Council on Sep. 13 proposed that ‘a series of SOEs will be cleared up, with some to be reorganized and integrated, and some to be innovated and developed.’
Recently, government leaders have repeatedly pledged efforts in cleaning up bloated and inefficient SOEs, or in another phrase, “zombie enterprises”. On the seminar on deepening SOEs reform on Sept. 18, Chinese Premier Li Keqiang called for prompt works to reform “zombie enterprises”, long-time loss-making enterprises and low-efficient and non-performing assets by merger and reorganization. In this way, state-owed capital will be more efficiently allocated and the national economy will see more complete functions.
In addition to clearing up zombie SOEs, China should introduce private capital by mixed ownership reform so as to improve enterprises’ internal governance structure and lift SOEs’ efficiency, Zhu suggested.
Industrial sample
Low oil prices hardly stimulate demands, petrochemical industry saw profit down over 70 percent in August.
According to the August statistics released by the NBS on Sept. 28, the profit in the petrochemical industry has sharply declined. In breakdown, the petroleum and natural gas exploitation industry saw its profit drop by 72.2 percent year on year, up by 16.6 percentage points compared with that of July. The chemical raw material and chemical product manufacturing industry saw its profit increase by 3.2 percent year on year, down by 13 percentage points compared with that of July.
Zhang Yonghao, an economist at www.chem365.net, indicated in an interview with the National Business Daily that the continuing slide of international crude oil prices in August has impacted the petrochemical industry and other related industries and depressed the profit in oil exploitation. And the sluggish domestic demands have worsened the situation in the chemical industry which also witnessed a fall in its profits.
Oil prices drag down profits in petrochemical industry
International crude oil prices went down all the way in August. The WTI (West Texas Intermediate) crude oil futures price even fell to a six-and-a-half-year low with 38 U.S. dollars per barrel.
Relevant officials from China Petroleum and Chemical Industry Association noted on the press conference of China Petroleum & Chemical International Conference held on Sept. 28 that impacted by the sharp decline of international crude oil prices in the first half year, the profit in the petroleum and natural gas exploitation industry totaled 62.89 billion yuan, a year-on-year decrease of 68.7 percent. Specifically, the profit in petroleum exploration plunged by 70.8 percent and that in natural gas exploitation by 33.2 percent. Meanwhile, the fixed-asset investment in the petrochemical industry continued to slow down, with an accumulative growth of 2.6 percent, the lowest record in history.
The Caixin China manufacturing purchasing managers' index (PMI) fell to a six-and-a-half-year low in September. The market imposes more worries on demand for global crude oil. Although crude oil inventory of the U.S. Energy Information Administration (EIA) reduced by 1.93 million barrels last week, its crude oil production increased by 133,000 barrels. This may drag down the international oil price, which is expected to continue to fluctuate around 45 U.S. dollars per barrel.
The decline in international crude oil price will cause China’s refined oil price to fall but won’t stimulate the domestic demand. According to data provided by ICIS, a petrochemical market information provider, export quota for China’s refined oil has amounted to 28.65 million tons since the beginning of this year. Specifically, export quota for gasoline, diesel and kerosene reaches 6.4 million tons, 8.83 million tons and 13.32 million tons respectively. Data from SCI International, a leading commodity market information service organization in China, showed that the total volume of refined oil export of China was about 19.5 million tons last year, while its export quota in 2015 has significantly exceeded this figure.
Petrochemical products see sluggish demand
The refined oil market sees scant demand, so does the whole petrochemical industry.
Statistics reveal that the petrochemical industry was faced with greater downside pressure in the first half of this year. There were 29,436 large petrochemical enterprises in China. They recorded a year-on-year growth of 8.8 percent in added value; 6.35 trillion yuan of sales revenue, up by 5.7 percent year on year; 313.21 billion yuan of total profit, down by 25 percent year on year; and 265.3 billion U.S. dollars of total volume of imports and exports, down by 21.7 percent year on year.
Zhang believes that the plummet in international crude oil price impacted petrochemical industry and other relevant industries, which directly cut the production profit of refining industry, investment in relevant industries and market vitality. In addition, the sluggish demand at home and abroad also led to oversupply. The petrochemical enterprises turned to carry out conservative production and sales strategy. Under the fluctuating and declining situation, most products suffered flat trading. The manufacturing enterprises were forced to lower price and squeeze profit so as avoid more losses resulting from overstock.
For example, the National Bureau of Statistics released that the production of plastic chemical products hiked by 0.8 percent during January and August this year, representing the lowest growth since 2010.
Translated by Jelly Yi，Coral Zhong and Vanessa Chen
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