China profit growth slowdown due to high base/weaker external demand: analysts

SHANGHAI (AFX-ASIA) - A marked slowdown in profit growth at China's industrial enterprises in April appears to be the result of a high statistical base at the same time last year and a weakening of external demand for the country's industrial goods, analysts said.

	    The National Bureau of Statistics earlier said China's industrial enterprises achieved a combined profit of 122.8 bln yuan in the four months to April, up 35.1 pct from a year earlier, an annualised growth rate 10.9 percentage points slower than the comparable rate for the first quarter.

	    State-owned and state-controlled industrial enterprises achieved a combined profit of 66.6 bln yuan, up 39.1 pct from a year earlier, a growth rate 19.5 percentage points slower than the rate for the first quarter.

	    Analysts said the figures indicated that industrial enterprises' combined profit in April rose by about 15 pct from a year earlier, a rate considerably lower than in the preceding months.

	    In the four months to April 2000, industrial enterprises combined profit amounted to 84.7 mln yuan, up 140 pct from a year earlier.

	    Nomura International senior economist Pu Yonghao said a slowdown in earnings growth this year was not surprising, given such strong growth in earnings a year earlier.

	    The surge in earnings last year was largely the result of debt-to-equity swaps -- which began in 1999 as part of the disposal of state commercial banks' non-performing loans, and enabled companies to stop paying interest on some bank loans -- and partly the result of an increase in petrochemical companies' earnings on the back of rising oil prices, he said.

	    The closure of loss-making state firms also boosted industrial firms' overall profit figure as losses were eliminated.

	    While a high statistical base may be a key cause of the slower earnings growth this year, weaker demand is also a factor, he said.

	    "It's probably right to say that demand is weakening. Apart from increases in service prices, the consumer price index is still subdued, and the overcapacity (in production) is still there," he said.

	    He said the slower earnings growth may have some impact on the economy, but will not be a particularly important factor, particularly since the earnings growth produced by the debt-to-equity swaps was essentially just a change in accounting practices.

	    DBS Securities analyst Chris Leung also said the slower earnings growth reflects weaker external demand, after the U.S. economy began to slow down in the third quarter of last year.

	    He said the decline in export orders should ultimately filter through into reduced wage payments and a reduction in corporate fixed-asset investment, although the government is boosting its own investment in infrastructure projects in order to offset an expected decline in investment from other sources.

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