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Impact of the rising cost of industry
Last Updated(Beijing Time):2005-05-12 11:00

By Shan Shan

Since the latter half of 2002, China's economy entered a new round of upward circle, as strong demands in various sectors fueled the rise of prices of such materials as iron ore, non-ferrous metals, coal and petroleum. During the upward circle, there are two obvious rounds of price rise of international raw material. The first time occurred at the second half of 2003, and the second happened at the latter half of 2004. The growth of industries is faced with dual pressures coming from cost and price, and especially, the negative influence of the latest cost impact to China's manufacturing industry is now being demonstrated in various industries.  

The National Bureau of Statistics released at early 2005 the industry profit condition in the first quarter of the year of national large-scale industrial enterprises, and these data obviously manifested various industries' capacity to sustain cost rise pressure.

In the first quarter of the 2005, Chinese national large-scale industrial enterprises realized a profit of 276.4 billion Yuan, up 17.2 percent year on year. Of the 39 industry categories, the five great industries of highest newly added profits are the petroleum exploitation, coal, iron and steel, chemical and tobacco industry respectively, which account for 100.6 percent of the whole industry newly added profits.

However, the profits of the industry of transportation equipment manufacturing dropped 52.1 percent, construction material industry dropped 43.1 percent, chemical fiber industry 41.1 percent, power industry dropped 30.5 percent and petroleum processing industry dropped 28 percent.

Generally speaking, the price rise in upstream material will result in the corresponding price rise of end products in the downstream. Taking the most representative petroleum processing industry as an example, the drop in the industry's profit is resulted from the twice surges of international oil prices. Against the backdrop of the rise of international iron ore and oil price, why the profits of some industries' experienced rises while others suffered quite great declines?

To Chinese enterprises, price is determined by the supply-demand relation, so it seems clearly different for various industries in aspect of the influences they suffered from the material price rise as well as the speed and extent of transferring the influences to their downstream enterprises. Generally speaking, industries with the characters of resource, monopoly or high-tech can better sustain the pressure of price rise.  

In the mining and quarrying industry, state-owned or state holding capital accounts for 81 percent. The unique advantage of state-owned economy and various factors as the national subsidies and policy support shielded the resource and monopoly industries from great influences brought about by cost changes and secured for them the largest profit increase. Therefore, it is only natural that the five great industries having the highest added profits include the industries of petroleum exploitation and the tobacco products. 
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