But the global financial crisis has hit many of China's industries hard, Li said. For example, the aluminum industry remains sluggish with more than 90 percent of aluminum smelters losing money. A decrease in ocean freight due to the depressed economy and the depreciation of the U.S. dollar and euro is directly affecting Chinese shipping companies. China Ocean Shipping (Group) Co. (COSCO), the largest ocean shipping company in the world, posted a net loss in the fourth quarter of 2008, whereas it had been profitable before that quarter.

Because the U.S. demand for Chinese goods has dropped considerably, Chinese export-dependent companies were the first companies to be affected by the crisis. Steel and textile exports have dropped by a big margin, prompting factory closures and layoffs. In Guangdong Province where exports account for more than 90 percent of the province's GDP, about 40 percent of export-oriented companies are facing possible closure.

A drop in the performance of state-owned enterprises (SOEs) under the Central Government has aggravated market worries. On January 5, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council issued a statement about the performance of these SOEs in 2008, saying that their total profit declined 30 percent year on year. This was the first time since 2002 that central SOEs posted such dismal financial results.

Huang Shuhe, Vice Chairman of the SASAC, said at the January 5 conference that the spread of the global financial crisis has brought about significant challenges for the central SOEs, which have been affected to varying degrees. In particular, companies in metallurgical, transportation, chemical, power, automobile and tourism industries have been more severely affected.

Because investors view the central SOEs as the backbone for performance growth of companies listed on the A-share market, their downturn has given further rise to pessimistic market expectations, Huang said.

Government aid

Faced with a worsening crisis, central SOEs should curb their own investment impulses, Huang said. They should carefully formulate their investment plans, make comprehensive market studies, control the scale of their investments and try to realize reasonable investment returns.

Huang also said that uncertainties and difficulties in the operational environment for the central SOEs are expected to further increase this year, especially in the first quarter. To try to minimize the effects of the financial crisis, he suggested that the companies keep their capital chains intact, prevent their operational performance from shrinking, secure their present market shares from further losses, take advantage of new development opportunities and strongly adhere to their major role in supporting economic growth.

The Ministry of Industry and Information Technology (MIIT) has paid close attention to the impact of the financial crisis on the real economy since its outbreak. On November 19, 2008, it introduced 10 measures to ensure the real economy would withstand the shocks of the financial crisis and maintain steady and rapid growth. The measures include revitalizing equipment manufacturing industries, speeding up the domestic production of key technologies and equipment, upgrading technologies of companies and alleviating the financing difficulties of small and medium-sized enterprises (SMEs). The government will create a special fund of nearly 10 billion yuan ($1.46 billion) from the central budget to support SMEs, double the amount allotted in 2008.

Wang Liming, Director of the Department of SMEs at the MIIT, said during a group interview with journalists that the special fund for SMEs this year aims to facilitate technology upgrades, mergers and acquisitions, technological innovations and product upgrades, as well as guiding social investment to help SMEs speed up their transformation of industrial structure.

On December 25, the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Administration of Taxation jointly issued a circular, offering five measures to alleviate corporate burdens so as to help companies stabilize employment. The measures include allowing companies with financial difficulties to delay their payment of social insurance premiums for a set period and use unemployment funds to stabilize present job opportunities.

Financial institutions also will strengthen their efforts to support the real economy. Wang said a plan is under way for financial institutions to innovate the services they offer to SMEs. The plan is expected to be launched in the coming one or two months to help further alleviate the financing difficulties of SMEs.