Investments by central State-owned enterprises' targeting scale expansion must be stopped and used instead to upgrade technology, products and the commercial model of the companies, the State-owned Assets Supervision and Administration Commission said.

SASAC, the government supervisor of 128 central SOEs, asked the companies to boost the management of their capital chain and cash flow. SOEs should also avoid the ripple effect resulting from the shortage of funds of upstream and downstream industries, SASAC said.

In the first half of the year, central SOEs generated profits of 387 billion yuan ($61.18 billion), down 16.4 percent from a year earlier.

Shao Ning, SASAC's vice-chairman, said earlier that central SOEs should prepare for a tough period in the next three to five years due to the slowing economic environment after 30 years of fast growth.

Among 139 listed central SOEs, including parent and subsidiary companies, 94 companies saw their profits decline, with the total drop at about 67.6 percent for the first half, Chinese media reported.

Wang Yong, SASAC's chairman, said that rising costs in energy supply, raw materials and in credit, along with foreign investors' sagging confidence and capability, would make 2012 a tough year for China's SOEs.