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Positive signal from industrial profit

THE profit decline experienced by China's industrial companies has slowed for the fifth straight month, the latest sign of optimism that the country may be entering the path to recovery.

The earnings of China's industries fell 22.9 percent in the first five months from the previous year to 850.2 billion yuan (US$124.4 billion), the National Bureau of Statistics said yesterday.

The pace of contraction compared with 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 shows the manufacturing sector is improving quite rapidly from its worst period at the end of last year," said Li Maoyu, an analyst at Changjiang Securities Co.

Wang Qing, an economist at Morgan Stanley, said the improved earnings among manufacturers reflected bigger improvement in the domestic market.

"The relative resilience in overall industrial profit and output growth implies significant support from domestic demand," Wang said. "Profit growth may continue to improve as China's economic recovery strengthens and if producer prices remain at low levels."

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 to a record low of 7.2 percent last month. Falling commodities prices over the past six months helped manufacturers reduce costs.

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

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

The slowing contraction in industrial profit was led by expansion among manufacturers in the refining, electricity generation and construction industries.

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

However, companies involved in petroleum and natural gas exploration reported profits fell 75.8 percent on an 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.


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