China's SOEs H1 profits up 7 pct

China's state-owned enterprises (SOEs) saw their profits rise 7 percent year on year in the first half, picking up from the pace of 6.5 percent in the first five months, the Ministry of Finance (MOF) said on Tuesday.

SOEs in the power, electronics, oil refining, construction and property sectors recorded relatively fast profit growth during the six-month period, according to a monthly report from the ministry.

The total profits of Chinese SOEs amounted to 1.11 trillion yuan (181.4 billion U.S. dollars) in the first six months, said the ministry.

During this period, profits of SOEs administered by the central government rose, while those administered by local governments suffered a decline.

Figures showed that centrally-administered SOEs saw profits surge 15.6 percent from a year earlier to 805.7 billion yuan. In contrast, profits of locally-administered SOEs shed 10.6 percent to 307.3 billion yuan.

Li Jin, a senior researcher with the China Enterprise Research Institute, said overcapacity and slow industrial upgrading should be blamed for the profit decline in local SOEs.

Many locally-administered SOEs are in the steel, non-ferrous, and petrochemical sectors, which are under pressure to eliminate excess production capacity, said Li.

Hu Yijian, a finance professor at the Shanghai University of Finance and Economics, said higher financial costs of local SOEs also contributed to their profit decreases.

As more funds went into financial instruments instead of the real economy in the first half of the year, the actual lending interest rates were kept at a relatively high level in China, said Hu.

At the same time, the liability of local SOEs has grown at a faster pace. The ministry's figures showed that the liability for central SOEs increased 10.9 percent year on year in the first six months, while those of local SOEs jumped by 17.9 percent.

Hu urged more capital into the real economy to support Chinese companies.

Wen Zongyu, director of the state-owned Research Institute for Fiscal Science under the MOF, said local SOEs should further increase the added value of their products for better profits.

"In China, the profit from producing a tonne of steel is lower than that from selling one cell phone," said Wen, adding that it is an urgent task for Chinese companies to upgrade their products.

The ministry's monthly report did not include SOEs in the financial sector.