Just as investors can rely too heavily on

economic growth numbers, so too is there danger in rejoicing in sales volume alone. In China, where growth figures have been consistently fabulous on the top line of both national accounts and company income statements, steady profits are often extremely hard to come by.

Take one of the stars of Hong Kong's IPO market last year,

TCL International

, China's third-largest TV manufacturer. Available to U.S. investors through its listing on the Hong Kong market (the ticker code is 1070.HK), the stock tripled to HK$5.25 ($0.67) in less than three months after its IPO in November of last year. It has fallen sharply recently, but TCL is rated a buy at

HSBC Securities

, which has no underwriting relationship with the company. "With a plan to add 1,000 more sales points this year, its TV sales volume is expected to increase by almost 30%" this year, the brokerage said in a report.

That's good top-line growth in a country where

GDP

is growing 7% a year. But what about earnings? HSBC has concentrated on TCL's sales network, not on whether those sales will generate profit. To be fair, HSBC does cite the company's weaknesses, which are that "increased sales to rural markets will reduce margins." TCL's other weakness is the company's "yet to demonstrate ability to apply the successful formula in TV's to white goods and IT products," the last of which include set-top boxes to carry Web-based content.

In contrast, analyst Jeffrey Yip at

Jardine Fleming

(with no underwriting relationship with TCL) is a lot more worried about profit at TCL than he is impressed with top-line sales figures. He started out calling the stock a buy when it went public in November at HK$1.75 a share, and investors who followed his advice have been happy. The stock tripled to HK$5.25 in less than three months. Even after the run-up, Yip told investors to hang in there. But on May 15, Yip labeled TCL a hold. TV prices had dropped 10%, compared with a 9% drop in prices in 1999 and margins have been compressed because by flat raw material costs. He has shaved four points off his forecasts for TCL's earnings growth for both next year and 2002.

On fears that profit will grow less than previously forecast, TCL's stock fell 26% last week. The shares were made more vulnerable by rumors that strategic investors in the company are getting ready to bail after their six-month lockup. With margins eroding, can they really be blamed?

That TCL is having a hard time selling TVs for steady profit is hardly surprising, even if China's overall economic growth figures look healthy. In addition to chronic deflation caused by stingy consumers worried about their jobs, the Chinese government has encouraged industry to move into electronics at the expense of steel and other heavy industry losers.

That meant that last year, the number of electronics companies that sold more than 10 billion yuan ($1.2 billion) in goods rose to 10, from just six the previous year. A production jump like that is good for GDP figures and sales alike, but at the company level it can be murder on the bottom line.