27 July 2012 Last updated at 00:02 ET

Chinese industrial firms see profits dip as economy slows

China's big industrial companies have played a big role in its expansion in recent years

Profits at China's industrial companies have dropped for the third successive month, as the slowdown in its economy hurt demand.

Earnings dipped by 1.7% in June from a year earlier, the National Bureau of Statistics said, after a 5.3% decline in May and a 2.2% drop in April.

The industrial sector has been one of the main drivers of China's expansion.

China's economy, the world's second-largest, grew at its slowest pace in three years during the second quarter.

Gross domestic product expanded at an annual rate of 7.6% in the three months from April to June.

Analysts said that slowing economic growth was making life difficult for the firms.

"This is a tough year for the companies that are used to seeing double-digit year-on-year growth in China," Patrick Chovanec of Tsinghua University told the BBC.

"This comes as a real shock to them."

More trouble?

There have been concerns that China's economy may slow further in the coming months due to problems in key export markets such as the US and Europe.

At the same time domestic consumption remains subdued.

Analysts said that a further slowdown was likely to hurt the fortunes of industrial firms even more.

They explained that some of the firms had borrowed money assuming that robust growth in profits would continue.

However, with a slowing economy and falling demand, earnings had instead started to dip, which could make debt repayments difficult.

"Many firms may find themselves in real financial distress and we are already seeing signs of that," said Mr Chovanec.