In the first five months of this year China’s industrial-company profits swelled 42.1% which, to some extent, nullified government efforts to cool investment in the world’s fastest-growing major economy.

The National Bureau of Statistics said today in an e-mailed release that combined net income increased to RMB902.6 billion ($119 billion). Sales jumped 27.4% to RMB14.2 trillion.

Premier Wen Jiabao is trying to prevent a rebound in factory investment that would increase the risk of overcapacity. Besides curbs on bank lending, the government has ordered state companies to start paying dividends to trim the money available for investment.

Qu Hongbin, chief China economist at HSBC Holdings in Hong Kong, said, ‘The strong growth will fuel increased investment. Monetary tightening needs to be continued.’

The government announced the trial dividend program last month. China has also tightened project approvals, curbed land use, increased energy costs, and cut export rebates. The central bank has raised interest rates twice this year. More monetary tightening is likely.
Source: Shanghai Daily News