The State asset regulator yesterday urged State firms to take preemptive measures to ward off potential risks from the expected macroeconomic tightening.

 

State firms should adjust their development strategy and map out countermeasures in accordance with changes in interest rates of bank loans and raw material prices, Li Rongrong, minister of the State-owned Assets Supervision and Administration Commission (SASAC), told heads of the 152 central enterprises, or those administered by the central government, at a meeting in Beijing yesterday.

 

Prices of raw materials have been rising steadily, pushing up company's costs. Energy and resources prices are also expected to rise, adding to cost pressure. The central bank has raised the interest rate of loans five times this year.

 

The tone-setting Central Economic Work Conference early this month said the country must prevent the economy from overheating and the price rises from evolving into entrenched inflation. Analysts said it sends a strong signal of credit tightening next year.

 

Li said the financials of some central enterprises are not sound enough to weather the potential risks.

 

Sixty-five central enterprises' asset-liability ratio, a gauge of corporate ability to pay back their debts, rose during the January-November period compared with the same period last year, Li said, adding that a few firms have relied too heavily on bank loans for their expansion, which has incurred potential financial risks.

 

The profit-making ability of some central enterprises may not be sustainable and budgetary management of some firms needs to be strengthened, he said.

 

"Those problems... mean life or death for enterprises."

 

China's expected macroeconomic tightening could start with commercial banks, which may lend 17 percent more than last year, according to estimates by economists. If a credit crunch occurs, bank loan growth rate may be reduced to as low as 13 percent and the corporate sector will face a severe test, they said.

 

Central enterprises have registered impressive balance sheets. They reported annual profit growth of 31.7 percent year-on-year in the first 11 months of the year to reach 918.66 billion yuan, according to Li.

 

Total revenue amounted to 8.72 trillion yuan in the same period, up 20.5 percent. Li said revenue might reach 9.6 trillion yuan for the whole year, an annualized increase of 20 percent.

 

Given their enhanced financial prowess, the recent plan to require central firms to pay dividends to the government on last year's net profits will not seriously affect their performance, Li said.

 

China announced last week that State-owned companies in the oil, power, telecommunications, coal and tobacco industries would have to pay a dividend of 10 percent of their profits to the government starting next year. Those in competitive sectors would pay 5 percent.

 

(China Daily December 19, 2007)