PROFIT of Chinese industrial companies continued to decline in the first quarter of this year, but it showed signs of recovery which may indicate the world's second-largest economy has bottomed out.

Net earnings of Chinese manufacturers fell 1.3 percent from a year earlier to 1.04 trillion yuan (US$165 billion) in the January-March period, the National Bureau of Statistics said yesterday.

The decrease narrowed from the 5.2 percent drop in the first two months, but still contrasted sharply with the full-year growth of 25.4 percent in 2011.

"Higher production costs, sluggish sales growth, a stronger yuan and weak external demand lead to falling profit among Chinese manufacturers," the bureau said in a statement.

In March alone, however, industrial profits rose 4.5 percent to 438.9 billion yuan from the same period of last year, the statement said. The bureau attributed the growth to a rebound in production and sales, the weakened impact of price fluctuations and an increase in non-operating revenues in the month.

"There are signs of improvement in manufacturing profit, indicating a possible end to its decline," the bureau said.

Li Maoyu, an analyst at Changjiang Securities Co, said that despite encouraging signs, China still needs to loosen policy further to support domestic demand.

"China's economic growth has moderated to the slowest pace in nearly three years, it's urgent that we should maintain economic stability by adding more stimulus," said Li, who suggested the People's Bank of China cut the reserve requirement ratio again to boost liquidity.

Private businesses still reported a profit increase of 22.4 percent in the first quarter, while earnings of foreign-invested firms and those from Hong Kong, Macau and Taiwan slumped 12.6 percent. State-owned enterprises said profit fell 12.4 percent.

China's industrial production grew 11.6 percent year on year in the first quarter, up from 11.4 percent in January and February.

The HSBC Flash Purchasing Managers' index, a preliminary reading that measures manufacturing activities, reached a two-month high of 49.1 in March. But it was still less than 50, which means a contraction in industrial activities.

The statistics bureau also announced yesterday that together with other authorities, it will strengthen supervision over the data-collecting process to ensure statistics are accurate. Last month, the bureau revealed two cases in which companies were forced to distort data for a "better-looking" GDP result.

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