The fast growth of credit also plays a vital role in accelerating economic recovery, the CSC report points out. Credit in large scales offers more financial support to the real economy, ensuring enough liquidity during economic recovery following the global financial crisis.

According to statistics released by the People's Bank of China, in the first half of 2009 the country's banks granted a record high of 7.37 trillion yuan ($1.08 billion) in loans, up 34.4 percent year on year. The growth was 4.92 billion yuan ($720.35 million) higher than that in the same period last year.

The CSC report holds that in 2009 cyclical consumption industries, such as real estate and automobiles, will recover first, followed by resources industries, including petroleum and power, and the mechanic industry. The iron and steel industry is expected to be the last to recover.

Among listed companies on the Chinese stock markets, most are state-owned enterprises administered by Central Government (central SOEs) or their holding companies. According to statistics from the State-owned Assets Supervision and Administration Commission (SASAC), since the outset of 2009 performance of central SOEs has been recovering. Compared with the first quarter, the pickup in the second quarter was also more apparent.

Stabilizing the banks

On July 14, Bank of Ningbo, a local bank, issued its mid-term financial report, the first one issued by listed banks this year and the only one issued by August 1. The bank report amended previous expectations on its mid-term performance in 2009, saying that the net profits in the first half of this year decreased less than 5 percent year on year, while in the report for the first quarter the bank predicted a mid-term performance decrease of 30 percent.

According to Bank of Ningbo published papers, the growth of loans granted by the bank increased slowly in the first quarter, but by the end of the second quarter it had finished its credit plan for the whole year, particularly through loans granted to individuals.

Bank performance is also recovering in those financial institutions that operate nationwide. Bank of China's first quarter financial report showed that quarterly earnings per share of the bank were just 0.07 yuan ($0.01), a year-on-year decline of 22.22 percent. By August 3 the bank still had not released its midterm report, but the CSC report predicts that the bank's earnings per share for the first half of 2009 will be 0.14 yuan ($0.02), a year-on-year decline of 17.6 percent, which is an improvement from the decrease experienced in the first quarter.

A total of 12 banks are listed on the Chinese stock markets. According to the CSC report, in the first half, five banks achieved better performances over the same period last year and four achieved equal performances, while three reported worse performances, but their decrease in the second quarter slowed down more than in the first quarter.

Prospective growth

Among the 157 companies that issued mid-term reports of 2009, some 69 provided performance forecasts for the third quarter, with 51 predicting better performance, four wiping out deficits, three equaling current performance and 11 expecting a decline.

The report on the 2009 Chinese economic outlook, released by the Center for Forecasting Science of Chinese Academy of Sciences, predicts that the third quarter will be a time of recovery for listed companies. The report holds that investment in infrastructure will continue to grow in the third quarter, with certain listed companies fully benefiting from the infrastructure boom.

The real estate and auto industries may be the leaders in the new round of economic growth in China, said a report of the China Asset Management Co. Ltd. With sales of houses improving, real estate investment will rise again in the second half of this year. Infrastructure investment will continue to increase rapidly as well, and the growth of infrastructure investment in central and western regions and in northeast China's old industrial base will be much higher than that in the coastal areas of east China, greatly improving the performance of companies in related industries, the report stated.

Further efforts needed

Despite the economic improvements, many officials and economists warn that the foundation for the economic pickup is not sound.

Li Rongrong, Chairman of the SASAC, warned at a conference held in Beijing on July 21 that there are still some problems that cannot be ignored in the production and operational processes of central SOEs. The foundation for the growth of economic returns is not yet solid, Li said, as revenues of some enterprises are still dropping sharply. Still other enterprises have reported financial losses due to the large amount of funds held by current inventories, mismanagement and the inability to quickly adjust to the economic situation.

Li also warned that there are still many uncertainties and unstable factors at home and abroad. The situation surrounding the world economic recession has not yet changed, the global economy may linger at a low level for a longer time than anticipated and there is even the possibility of a reversal of the current positive economic growth, Li said.

Growing inventories and export slump are also major contributors to Chinese enterprises' troubles.