China's industrial firms earned profits of 496.8 billion yuan (US$59.9 billion) during the first five months of this year, an increase of 15.8 percent from a year ago, the National Bureau of Statistics said yesterday.

The growth was slightly faster than the 15.6 per cent rate recorded for the first four months.

Zhang Xueying, a senior economist with the State Information Centre, said this did not mean the industrial firms' economic efficiency had necessarily improved.

"It was temporary," he said.

The better performance was mainly because of lower oil and steel prices in May, he said.

Oil prices have since risen again. Steel prices have also begun to creep up.

The higher prices of energy and raw materials will continue to eat corporate profits in the future, he said.

He explained that industrial firms are unable to transfer the increased costs into prices for finished products, because they would rather lose profit than market share.

Earlier figures suggest that prices for energy and raw materials rose 9.9 per cent during the first five months, but consumer prices rose 2.4 per cent in the same period.

Zhuang Jian, a senior economist with the Asian Development Bank, agreed the high prices of products such as oil and steel, as well as fierce market competition, will continue to squeeze industrial companies' profit margins.

"They may face even tougher times in the coming years, as local governments in many areas plan to raise prices in commodities such as water and electricity," he said.

Wang Zhao, a senior researcher with the State Council Development Research Centre, said the current profit situation was in line with the economic development trend.

The economy has stepped into a stable development period, he said.

Earnings of coal and crude oil producers rose 88 per cent and 71.8 per cent during the first five months, while companies in the transport equipment and building materials sectors lost 48 per cent and 31.3 per cent of theirs, the statistics bureau said.

Net losses by money-losing firms stood at 91.7 billion yuan (US$11 billion), up 56.1 per cent.

Profits earned by State-owned firms and firms in which the State holds a majority stake grew by 13.6 per cent year-on-year during the first five months, and that by the collectively-owned firms rose 29.4 per cent.

But profits of overseas-funded firms fell by 4.3 per cent.

Domestic media reports claimed that some overseas-funded firms played down profits to evade taxes.

The State Administration of Taxation said in May that the government would beef up inspections of those companies which have repeatedly reported losses, but continue to operate in China, hinting it began to cast doubt on those companies' performance.

(China Daily June 23, 2005)