China's coastal regions, which are responsible for the lion's share of nationwide manufacturing output are struggling on higher raw material and labor costs, a recent phenomenon benefiting the poorer, resource-rich provinces in the hinterland.

Some 37,500 designated industrial firms (each posting at least ¥20 million in annual revenues) in Guangdong, China's largest provincial economy, saw their gross profits edge up just 2.4% to ¥461 billion in 2011, with the average profit margin dropping 0.9 percentage points to 4.8%, statistics show.

Firms engaged in the manufacture of telecommunications products, computers and electronics - an economic pillar in Guangdong - reported ¥69 billion in gross profits last year, down 13.8% from 2010.

The designated industrial firms in Zhejiang province, which has the most dynamic private sector in the country, posted ¥308 billion in gross profits in 2011, up 9.9% from a year earlier; the rate was 15.5 percentage points slower than the national average.

In contrast, Inner Mongolia, Shanxi and Shaanxi provinces, which have traditionally been underdeveloped regions, registered 40%-plus growth in industrial earnings thanks to their local natural bounty.

Between January and November 2011, Shaanxi's industrial profits were up 44.8% to ¥159 billion, Inner Mongolia's were up 41.4% to ¥150 billion and Shanxi's were up 40.4% to ¥120 billion, according to data from the provincial statistics bureaus.

China's industrial earnings rose 25.4% from a year earlier to ¥5.45 trillion in 2011, where growth in earnings from the oil and gas industry were up 44.8% and growth in earnings from nonferrous metal mining were up 53%, figures from the National Bureau of Statistics show.

Upstream resource companies are monopolistic government-run companies that are price setters for resources, while downstream manufacturers have failed to pass on rising expenses amid sagging export orders and fierce competition, Xiamen University professor Ding Changfa argued.

"Energy prices will continue to rise in China," Ding noted. "So the government should keep the manufacturing industry afloat by rolling out more policies, such as reducing funding costs and offering tax breaks."

Spiraling resource prices will exert pressure on manufacturing, and a weaker manufacturing sector will undermine the national economy as a whole and even social stability, Ding cautioned.

$1 = ¥6.3

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