(Yicai) June 27 -- China’s industrial profits dropped sharply last month due to weak demand, tumbling prices and short-term volatility, but experts say this is a temporary setback and profits will rebound in the months ahead.

Profits at Chinese industrial enterprises above a designated size plunged 9.1 percent in May from the same period last year, according to data released today by the National Bureau of Statistics. This reversed the positive growth logged in the first four months, when profits expanded 1.4 percent from the year before.

As a result, industrial profits dipped 1.1 percent in the five months ended May 31 from the same period last year to CNY2.7 trillion (USD379.4 billion), the NBS said.

However, despite the decline, the gross profit of these companies climbed 1.1 percent in the first five months year on year and revenue advanced 2.7 percent. The profits of private companies jumped 3.4 percent and that of businesses with investment from foreign entities as well as from Hong Kong, Macau and Taiwan edged up 0.3 percent.

Industrial firms will see a steady improvement in performance as output, pricing and profit margins all gradually recover, said Pang Ming, a senior researcher at the National Institution for Finance and Development. The equipment and high-tech manufacturing industries are expected to continue to play a stabilizing role in the expansion of large-scale equipment upgrades and consumer trade-ins with the support of new and expanded stimulus policies as well as existing measures

In terms of industries, profits in the equipment manufacturing industry surged 7.2 percent from a year earlier, while the electronics, electrical machinery, general equipment and other industries logged double-digit profit growth. The general equipment industry posted a 10.6 percent jump in profit, while the specialized equipment industry reported a 7.1 percent increase.

There is still room for the profits of industrial enterprises to improve, said Wen Bin, chief economist of Minsheng Bank. Policies aimed at upgrading key sectors, easing financing, boosting demand and lowering costs will help lift profits. However, it is necessary to pay attention to risks such as the slowdown in export growth and the fragmentation of the real estate market that could weigh on profits.

More proactive and effective macroeconomic policies are needed, said Yu Weining, statistician at the NBS’ Department of Industry. They should focus on strengthening the domestic economic cycle, driving innovation and promoting high-quality development in the industrial sector so as to lay a firm foundation for the recovery of industrial profits.

Editor: Kim Taylor