Profits at the mainland's biggest state-owned enterprises slumped more than 26 per cent in the first half of the year, but the decline is easing amid massive government stimulus spending and record lending.
The 136 top companies under the control of the State-owned Assets Supervision and Administration Commission (Sasac) posted a combined profit of 316.03 billion yuan (HK$358.57 billion) for the period, down 26.2 per cent from a year earlier, Xinhua quoted the watchdog as saying.
Despite the earnings slide, performance improved in the second quarter as the mainland economy felt the positive effect of Beijing's four trillion yuan stimulus package.
Compared with the first three months of this year, the plunge in profits at state-owned companies narrowed 15.6 percentage points. Their earnings grew 29.5 per cent to 75.19 billion yuan last month from May, according to Xinhua.
Revenue during the first six months fell 6.3 per cent to 5.36 trillion yuan.
Qu Hongbin, HSBC's chief economist for China, expects earnings at mainland companies will continue to improve in the second half.
Infrastructure-related sectors, such as steel and other raw materials, which state-owned companies dominate, are benefiting the most from a mainland recovery, Mr Qu said.
The world's third-largest economy expanded 7.9 per cent year on year in the second quarter and 7.1 per cent in the first half as massive spending and lending pushed the rebound well past the 6.1 per cent growth in the first quarter.
Merrill Lynch said China's data suggested the recovery may be entering a new phase, in which policy stimulus spills over to a broader and more self-sustained recovery in domestic demand.
Sasac chairman Li Rongrong warned that issues still exist. Some companies are having funding difficulties because of the increase in inventory and accounts receivable, while others are not sensitive to market changes because of a complicated managerial structure.
The 136 companies are the largest on the mainland and include firms in the energy, telecommunications, raw materials and airline sectors, but not banking and insurance.
Many of them have near-monopolistic advantages, such as the China National Petroleum Corp, State Grid Corp of China and China Mobile Communications Corp.