China state asset watchdog warns firms on risks

SHANGHAI, April 17 (Reuters) - China's top state asset regulator warned government-owned companies about financial risks posed by credit tightening and rising energy and raw material costs, the official Shanghai Securities News reported on Thursday.

Li Rongrong said in an internal meeting that risks also stem from greater uncertainty in the domestic and global economy, as well as changes in China's foreign exchange, interest and tax rates, the article said.

Li urged state firms to strengthen risk controls over borrowing and receivables as well as for their financial and derivative businesses, noting that some companies are lax in managing costs related to workers' pay, operations and sales, the newspaper said.

Profits at China's state-owned companies more than tripled to 996.85 billion yuan ($142 billion) last year from 2003, boosted by the country's economic boom and state sector reform. Sales more than doubled to 9.8 trillion yuan during the period.

However, some major state firms have recently reported profit warnings, suggesting inflation and government tightening are biting into corporate earnings.

Huaneng Power International (0902.HK)(600011.SS), China's largest independent electricity provider, said on Wednesday that first-quarter net profit fell more than 50 percent on rising coal costs, despite an 18.6 percent rise in power generation.

Another power generator Yangtze Power Co Ltd (600900.SS), operator of the Three Gorges hydroelectric dam, said on Wednesday that profit dropped as much as 40 percent in the first quarter from a year earlier due to rising costs and reduced power generation.

(US$1=7.00 Yuan)

(Reporting by Samuel Shen; Editing by Ken Wills)