Mainland industrial profits rose in the first two months of this year, extending gains made in the fourth quarter, thanks to low comparable figures a year earlier.
However, overcapacity may reduce the room for further improvement, analysts say.
Industrial companies posted profits totalling 709.2 billion yuan (HK$877 billion) during the January-February period, 17.2 per cent higher than a year earlier, the National Bureau of Statistics said yesterday. In contrast, profits declined 5.2 per cent in last year's first two months from the same period in 2011.
Core revenues totalled 13.7 trillion yuan in this year's two-month period, 13.1 per cent more than a year earlier.
The profit data covers companies with annual core revenue of 20 million yuan or more.
He Ping, an expert in the industrial department of the bureau, attributed the rise in profits to a low comparison base.
He also noted about 80 per cent of the growth was contributed by six major industries where raw material costs had fallen: power, crude processing, steel, electronics, cars and tobacco.
The power industry achieved 46 billion yuan worth of profits in the first two months, 1.5 times that recorded a year earlier, as coal prices fell sharply.
Falling oil prices enabled oil-processers to generate profits of 5.7 billion yuan, reversing 10.1 billion yuan of losses a year earlier.
Steel firms made 14.6 billion yuan in profits over the period, 17 times the amount a year earlier.
But Societe Generale China economist Yao Wei said industrial profit growth, after seasonal adjustment, appeared to have decelerated on a sequential basis.
Industrial output rose 9.9 per cent in the two-month period, slower than the 10.3 per cent increase in December.
"Although the outlook should continue to improve in the next few months, we still caution to what extent the profit recovery will lead to more capital expenditures, in light of the large amount of excess capacity in the system," Yao said.