Nervous Times for Chinese Businesses

Nearly 40 percent of corporate representatives at Chinese companies responding to a recent survey are predicting losses in the third quarter of 2005.

According to the Xinhua news agency, some 259 companies with listings on China’s stock markets responded to the survey, with 38 percent of them predicting losses. Another 15 percent are predicting their net profit amount will decrease in the third quarter.

The appreciation of the yuan appeared as one factor in responses, while other companies cited the rise of production costs and a perceived industrial recession as reasons for the expected losses.

Another source of business gloom in China could be an August pronouncement discouraging personal investment by government officials in state-owned mining operations.

According to the China Daily, “The State Council has . . . decreed that local government or state-owned enterprise (SOE) officials with personal investments in mines must withdraw their stakes by September 22 or suffer severe punishment.”

The decree stems from what the paper calls an inherent conflict of interest between regulation and profitability in the wake of mining disasters that have killed 9,000 workers in China in less than two years.

“Extensive official corruption was exposed in the recent Daxing Mine tragedy in southern Guangdong Province that left about 120 people trapped in flooded shafts,” the China Daily comments.

The paper also opines that although existing regulations have banned Communist Party members and public servants from having personal interests in businesses, “the practice is still widespread in the coal mining industry and other areas.”

Adds the newspaper in an editorial opinion piece, “With personal interest in companies that are usually under their jurisdiction, these officials are assuming the role of both player and referee. They abuse their power to gain advantage in competition, such as access to business deals, information, markets, bank loans and even preferential treatment in taxation.”

The mining industry crackdown could precede a wider-ranging enforcement of such arrangements, or at least that is what the China Daily editorial advocates: “The State Council’s decision is certainly a big step towards making our mines safer and officials cleaner. But official involvement in business should be banned in many other sectors too,” it proclaims.