(Yicai Global) June 28 -- The profits of China's industrial firms grew in the first five months this year while rallying on a strong demand for raw materials. The single month of May was weak, bracing for the brewing trade tiff between the world's two largest economies.

The main sources of profit growth for industrial companies were raw material processing industries such those for iron and steel, building materials, and chemicals, He Ping said in a report that was released by the National Bureau of Statistics yesterday.

In the first five months this year, the profits of industrial firms above a designated scale increased 16.5 percent from the same period a year earlier. The growth rate rose 1.5 percentage points compared with the first four months.

In the month of May, profits grew 21 percent, which was 0.8 percentage point slower than in April. The drop can partly be explained by a loss of market confidence while anticipating the looming trade war with the US.

Profit growth of state-owned enterprises during the five-month period was significantly faster than that of private firms. SOEs generated a total profit of CNY810.4 billion (USD122.5 billion), up 29 percent from the year before. Private companies made a total profit of CNY746.6 billion, an increase of 11 percent.

The firms continued to reduce their debt. At the end of May, the asset-liability ratio of industrial firms above the designated scale was 56.6 percent, a decrease of 0.6 percentage point from the year before. The asset-liability ratio of SOEs was slightly more at 59.5 percent, a drop of 1.5 percentage points.

In May, industrial producer prices rose by 4.1 percent from the year before, a rise of 0.7 percentage point in comparison to April. These producers' purchase prices rose by 4.3 percent, up 0.6 percentage point from April.

If costs continue to rise in the future, profit pressure on highly competitive downstream industries will increase and may dampen enthusiasm for investment, Liu Zhe, vice president of Wanbo New Economy Research Institute told Yicai Global. "The government should continue to reduce taxes and fees and remove the constraints on affordable products' supply, so as to ensure sustainable profit growth for industrial firms in the second half of the year," he added.

Editor: Emmi Laine