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Profit fall stall adds to optimism

THE falling profits among China's industrial companies stalled for the fifth consecutive month, feeding optimism that China may soon ride out the global economic recession.

Profits of China's industrial companies fell 22.9 percent from a year earlier to 850.2 billion yuan (US$124.4 billion) in the first five months, the National Bureau of Statistics said today.

The pace of contraction has kept slowing, compared with the drops of 27.9 percent in the first four months, 32.2 percent in the first quarter and 38.5 percent in the January-February period.

"The smaller year-on-year drop in profit can be translated into increases on a monthly basis, which shows the manufacturing sector is actually improving quite quickly from the worst period at the end of last year," said Li Maoyu, an analyst at Changjiang Securities Co.

"The recovery of China's economy has become more evident as the dataset in May showed encouraging signs on the part of the domestic market."

The National Bureau of Statistics did not provide month on month data but judging from the slowing contraction, the profit figure in May should be larger than that of April, said Li.

Wang Qing, an economist at Morgan Stanley, said the improved profit among manufacturers reflected the big demand from the domestic market.

"The relative resilience in overall industrial profit and output growth implies significant support from domestic demand," said Wang. "The profit growth may continue to improve when China's economic recovery strengthens while the producer prices may stand at a low level for some time."

China's industrial production posted a better-than-expected growth of 8.9 percent in May, outpacing increases of 7.3 percent in April and 8.3 percent in March after the country's massive stimulus package started to pay off.

The Producer Price Index, the main gauge of factory-gate inflation, slid further to a record low of 7.2 percent last month from drops of 6.6 percent in April and 6 percent in March. The falling prices of commodities, which has been in the contraction for six straight months, partly helped manufacturers to cut costs and thus widen their profit margin.

Analysts have become more optimistic about China's economy after the country unveiled its May dataset.

Earlier this week, Guo Tongxin, an official at the National Bureau of Statistics, said China's economy may have hit the bottom in the final quarter of last year and expected China's growth may expand nearly 8 percent in the second quarter.

The World Bank also raised its forecast for China's growth this year to 7.2 percent from an earlier estimate of 6.5 percent.

The slowing contraction of industrial profit was led by growth among manufacturers in refinery, electricity generation and construction industries.

Oil refiners saw their profit settle at 44.8 billion yuan in the first five months, compared with a net loss of 44.9 billion yuan in the same period last year. Earnings in power producers and construction companies grew 14.6 percent and 8.6 respectively from a year ago.

However, petroleum and natural gas exploration companies reported their profit tumbled 75.8 percent on the annual basis after global oil prices sank to below US$70 a barrel from a record high of nearly US$150 a barrel in July last year. Steel producers also posted a 97.2 percent fall in profit because of sinking external demand.


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