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Carmakers rebound but turnaround may fade

Three mainland carmakers reported double-digit profit increases in the first six months of this year, although the size of the gains had more to do with how bad profits were last year when carmakers were in the middle of a price war than how good they are now.

Worse yet, the rebound in sales that helped fuel the turnaround already shows signs of fading.

China's No4 carmaker, Shenzhen-listed Changan Auto, said net profit jumped 48 per cent to 435.3 million yuan on sales up 32 per cent to 12.58 billion yuan. The gains reflected brisk business at its joint venture with Ford in Chongqing.

Chonqing-based Qingling Motors, a truck-maker in partnership with Japan's Isuzu Motors, posted a 22 per cent increase in net profit to 32.3 million yuan despite sales rising only 0.6 per cent to 1.62 billion yuan. The Hong Kong-listed company's finance costs plunged 64 per cent to 9.3 million yuan.

Great Wall Motor, China's largest manufacturer of pickup trucks and sports-utility vehicles, saw net profit rise 81 per cent to 367.5 million yuan. Sales jumped 58 per cent to 2.52 billion yuan.

Wei Jianjun, chairman of Hebei-based Great Wall, said the Hong Kong-listed carmaker reduced production costs to offset the negative impact of measures including higher taxes imposed by the government earlier this year to rein in excessive expansion in the industry.

China's passenger car sales grew 26.5 per cent in the first half to 2.51 million, according to the China Association of Automobile Manufacturers, although much of the gain reflected a rush by consumers to beat tax increases. Last month, sales slowed notably, gaining just 8.5 per cent from levels a year ago, a trend analysts expect will continue.

'Overall growth of the automobile industry will be slower in the second half,' said Grace Mak, the director of China equity research at Merrill Lynch.

More worrisome still for the industry are signs that mainland carmakers may be resorting to price cuts to boost sales.

Qingling shares rose 2.85 per cent yesterday to HK$1.08 while Great Wall added 2.79 per cent to HK$5.15.

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