Chinese industrial profits are expected to rebound in the second half as stabilizing producer prices may boost margins, analysts said.

Industrial profits nationwide fell 22.9 percent in the first five months from a year earlier, the National Bureau of Statistics (NBS) said on Friday. This was 14.4 percentage points less compared with a fall of 37.3 percent in the first two months of the year.

The country's industrial profits fell 22.9 percent in the first five months, but most analysts feel that the decline would slow in the second half of the year. [Photo: CFP]

"The slower rate of decline is mainly due to a recovery in domestic demand, a decline in operating costs and a stabilization in producer prices," NBS said in a statement published on its website.

Prices of fuel, power and other raw materials, which have a big impact on industrial profits, have stopped falling month-on-month since April, and that is helping to slow the pace at which profits are dropping, it said. Fast growth in investment and a steady increase in domestic consumption are also pushing up industrial activity.

Analysts said industrial profits are expected to rebound further in the second half as the decline in the producer price index (PPI) eases.

"The PPI decline is expected to ease in the second half, and this would help increase the margins of many industrial enterprises," Li Jianfeng, analyst, Shanghai Securities, said.

The PPI has dropped 5.5 percent year on year from January to May this year, squeezing industrial margins. But the decline is expected to slow in the second half, especially after August, according to Li.

"PPI will continue to see significant drop until August considering the tail-raising factor, but after that, the decline may slow significantly, and this will help increase producer's margins," Li said.

The PPI in August 2008 rose as much as 10.1 percent year on year, the highest in 12 years.

Meanwhile, analysts said profits of industries such as food processing, textile, telecommunications, automobile as well as equipment manufacturing are likely to see a slower decline as the stabilizing of international commodity prices would help them cut costs.

Operating costs in the first five months dropped by 0.9 percent from a year earlier, according to NBS figures.

The NBS this year is releasing nationwide year-to-date profit data for February, May, August and November. In the other months it is issuing year-to-date data compiled from 22 provinces that account for 78.6 percent of nationwide industrial earnings.

The improvement chimes with other indicators suggesting that the economic recovery is gaining momentum.

China's GDP growth is expected to accelerate to nearly 8 percent in the third quarter and over 9 percent in the fourth quarter, a senior government economist said in remarks published on Friday.

Annual growth in the first three months was 6.1 percent. Figures for the second quarter are due on July 16.

(China Daily June 27, 2009)