PROFITS at China's industrial companies grew at a faster pace in May, led by the power generation, auto, information technology and oil refinery sectors, the National Bureau of Statistics said yesterday.

But analysts say that may not be a sign of economic recovery.

Growth of industrial profits accelerated to 15.5 percent from a year earlier last month, compared with the pace of 9.3 percent in April and 5.3 percent in March. May's profits totaled 470.5 billion yuan (US$75.8 billion).

However, Yu Jianxun, a bureau researcher, said the faster growth was concentrated in just a few industries and couldn't be taken as evidence of economic recovery.

"Profits gained in power generation, auto, information technology and oil refinery sectors account for 98.5 percent of the total profits," Yu said.

"It shows that the majority of the industries remain lukewarm in their performance."

Yu said lower costs for coal and oil explained profits in power generation and oil refinery, while the auto and information technology sectors benefited from an increase in sales.

A lower comparative base was also a factor.

Industrial profits in May last year dropped 6.9 percent year on year, Yu said. That suggested recovery in the world's second-largest economy may remain weak amid slack demand.

China's economy grew 7.7 percent in the first quarter, when modest recovery had been expected, and there seemed to be no turnaround in the current quarter.

On Monday, China's stocks dropped the most in nearly four years after commercial banks reported liquidity problems, triggering fears of a credit crisis.

Pu Yonghao, regional chief investment officer for Asia Pacific at UBS, said the current monetary crunch in China was seeded four years ago when the country launched its massive stimulus package during the global financial crisis.

"The monetary squeeze is a result of the huge demand for credit to fund investment projects starting years ago," Pu said. "It can take time and wisdom to address this issue which may have a lasting influence over China's economy."

Power companies nearly doubled their profits to 24.9 billion yuan in May. Car manufacturers posted 40 billion in profits, up 27 percent from a year earlier.

From January to May, industrial profits rose 12.3 percent to 2.08 trillion yuan, up from 11.4 percent in the first four months. Growth in revenue was unchanged at 11.9 percent.

The profit and revenue figures are based on a survey of companies with annual sales of 20 million yuan or more and followed an HSBC flash purchasing managers' index which showed that manufacturing activity in June may contract for a second consecutive month and even fall to a nine-month low.