Chinese state-owned enterprises (SOEs) must pay more attention to their financial position to avoid a potential capital crunch, the Economic Observer reported, citing Li Rongrong, director of the State-owned Assets Supervision and Administration Commission.

"Keep a close watch on your pockets and do not deplete yourselves," said Li, who talked at a recent meeting to senior executives from 150 SOEs directly controlled by the central government.

Li said the SOEs, some of which have already flagged cash flow shortages, should better prepare themselves for tightening monetary policy lasting at least two years, according to the report.

The meeting was held after figures showed that combined profits of the major SOEs in the first quarter dropped 2.9 percent from a year earlier to 203.4 billion yuan (29.1 billion dollars), it said.

Earnings at oil companies and power generators were worst hit, because of rising raw material costs and the government's central pricing system for oil products and electricity tariffs, it said.

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