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China's SOEs suffer as financing costs rise

BEIJING (Reuters) - China's about 26,000 state-owned enterprises (SOEs) were hit by rising operating costs during the first 10 months of the year, mainly led by financing expenses, the Ministry of Finance (MOF) said in a report released on Tuesday. State-owned holding companies and non-financial firms reported total revenues of 39.32 trillion yuan (4 trillion pounds), an increase of 4.5 percent over the same period a year earlier, the MOF said. Revenue gains were outstripped by operating costs, however, which increased by 4.8 percent to 37.98 trillion yuan. Finance costs drove expenses, the MOF said, rising 18 percent in the January-to-October period. Finance costs at the country's 113 central government-controlled conglomerate groups, which account for more than 60 percent of total SOE revenue, increased 21.3 percent. "This means the problem of high financing cost has spread to state firms. It is also difficult for some under-performing enterprises and companies in sectors suffering overcapacity to get credit from banks," said Li Jin, chief researcher with the China Enterprise Research Institute, according to a report by the official Xinhua News Agency. China's central bank on Friday announced the first cut in interest rates in more than two years, in a move that may help Chinese companies manage the rising cost of borrowing and help stimulate economic activity. The country's gross domestic product growth slowed to 7.3 percent in the third quarter, and policymakers fear it may be on the verge of dipping below 7 percent. China's state sector reported a 6.08 increase in total profits, to 2.08 trillion yuan, during the January-to-October period, the MOF said. However, firms in the telecommunications, nonferrous metals, coal, chemicals, petroleum and petrochemical industries reported declining net income. Steel, transportation, automotive, construction, real estate and power companies reported profit growth, the MOF said. Beijing is implementing a series of reforms aimed at boosting corporate efficiency and transparency of its state-owned sector. Return on equity, an efficiency measure, is less than 5 percent for local state firms and about 10 percent for central SOEs, compared with about 15 percent for private businesses listed in Hong Kong, according to Stephen Sun, head of China equity strategy at HSBC Global Research. (Reporting by Matthew Miller, editing by David Evans)