China’s reduced Industrial Profit Growth

The attempts of the Chinese government to control inflation has prevented oil refineries and power generators to raise their prices and as a result Chinese industrial companies profits have risen at slowest pace in three years as their combined net income in January and February to 348.2 billion Yuan.

Income rose 16.5 percent in January and February, although this pales in comparison to the 44 percent gain experienced in the first two months of 2007.

Following t he worst blizzards in over 50 years the adverse weather conditions meant that Oil and coal prices rose and disrupted the manufacturing industry and power generation resulting in Oil refiners recorded 20.6 billion Yuan less, compared with last years 15.6 billion Yuan for the same period.

Xing Ziqiang an economist at China International Capital Corp said that: “margins will continue to be squeezed by government price controls,” and that the current controls are unlikely to be relaxed because of the current inflationary pressures as the country is experiencing an inflation at an 11-year high of 8.7 percent.

These losses have had an effect on the CSI 300 Index which fell 2.3 percent, in amongst which Boashan Iron & Steel Co fell 6.8 percent and the country’s largest oil refiner saw 5.6 percent wiped off its value as there are concerns that corporate profits will continue to slide and this is stifling the demand for shares.

As well as the government controls the increased price of raw materials, higher wages, increased borrowing costs and reduced export demand will hit companies’ profits further in the year.

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