The oil and energy sector is currently facing a tough winter, which has significantly impacted the overall profitability of state-owned enterprises (SOEs). According to the Ministry of Finance, SOEs saw no growth in profits during the first half of this year. While operating income rose by 25.98%, profit growth was only 1.71%—a sharp slowdown compared to previous years. In 2002-2007, the average annual profit growth for SOEs was as high as 33.7%, according to Li Rongrong, head of the State-owned Assets Supervision and Administration Commission (SASAC).
“The increase in costs has been a major factor behind the slowing profit growth,†the Ministry of Finance noted. Operating costs for SOEs surged by 29.63% in the first half of the year, while financial expenses rose by 26.13%. This outpaced the 25.98% increase in operating income, leading to a significant squeeze on margins.
Gao Huiqing, director of the Development Strategy Division at the National Information Center, explained that the drop in profitability is not unusual. He pointed out that SOE profits have largely come from monopolized sectors, such as energy and utilities. However, these industries are now being affected by fluctuating global energy prices and tighter domestic regulation. “Losses in these sectors are largely policy-driven,†he said.
Profit declines were particularly noticeable in the oil, petrochemical, and power sectors. Central SOEs saw their total profits fall by 5.77% year-on-year, while local SOEs managed a modest 24.65% increase. The gap between central and local SOEs reflects the structural challenges within key industries. For instance, the petroleum and petrochemical sectors reported losses of 79.65% and 16.26%, respectively. Power generation companies also suffered, with the five largest firms collectively losing 8.179 billion yuan in the first half of the year—an increase of 2.404 billion yuan in losses compared to January-May.
Meanwhile, the automotive and construction materials industries saw slower profit growth, indicating broader economic pressures. As the government continues to implement macroeconomic controls, the performance of SOEs will likely remain under scrutiny. With cost pressures persisting and external factors like global energy volatility affecting operations, the road to recovery for state-owned enterprises remains challenging.
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