TO THE POINT: The manufacturing industry shows signs of a turnaround, with the purchasing managers index staging a comeback in August. China's "big four" state-owned commercial banks are generating windfall profits, though risks still loom large. Fund management companies are swimming in red ink, receiving cues from flagging stock markets. Industrial enterprises experience slowed profit growth. Chinese shipping giant COSCO falters because of tepid demands and overcapacity woes.

PMI Rebounds

The purchasing managers index (PMI), a barometer of manufacturing activities, stood at 50.9 percent in August, reversing four consecutive months of declines, said the China Federation of Logistics and Purchasing (CFLP). The index came in at a 29-month low of 50.7 percent in July.

Still, this was the 30th straight month in which the index was above the boom-andbust line of 50 percent. A reading above 50 percent indicates economic expansion.

The new orders sub-index, an effective gauge of domestic demand, stood at 51.1 percent in August, the same as last month. The input prices sub-index, a measure of how much factories pay for raw materials and other intermediary goods, climbed to 57.2 percent, compared with 56.3 percent in July.

"It shows that the broader economy is recovering its lost ground," said Zhang Liqun, a researcher with the Development Research Center of the State Council. "But uncertaintiesn are still hanging over the growth outlook, especially slack in exports and consumption."

"The biggest concern is severe inflation, which is mounting pressures on enterprises," he said. "As a result, it is still necessary to take measures to underpin foundation of the manufacturing recovery."

Banking Euphoria

China's "big four" state-owned commercial banks have experienced a surge in profits as their interest income continues expanding.

Industrial and Commercial Bank of China, the country's top lender by assets, said first-half profits soared 29 percent from the previous year to reach 109.6 billion yuan ($17.125 billion).

The bank's net interest income, which reflects the difference in revenue from lending and the cost of deposits, grew 21.8 percent to 174.5 billion yuan ($27.3 billion) in the January-to-June period. Net fee and commission income from products and services such as credit cards, wealth management and insurance sales rose 45.8 percent to 53.8 billion yuan ($8.4 billion).

China Construction Bank, the second largest lender, saw its net profits climb 31.33 percent to 92.95 billion yuan ($14.5 billion).

Bank of China's first-half profits rose 28.98 percent to reach 70.13 billion yuan ($11 billion).

Agricultural Bank of China generated 66.68 billion yuan ($10.4 billion) in net profits, up 45.4 percent.

"Despite the bright performance, commercial banks have felt the pinch of tightening monetary policies, which punched their ability to lend," said Sun Lijian, Vice President of School of Economics of Fudan University in Shanghai.

Lian Ping, chief economist with Communications Bank of China, also struck a note of caution. "The government has stepped a stringent control over financing vehicles of local governments, but there are still default risks," he said.

"In 2009, China kick started an infrastructure building spree, many of which were funded by loans borrowed through financing vehicles of local governments," said Lian. "In the first three years, the projects usually only need to repay interests. When they have to repay principle in 2012, risks may break out."

Funds' Gloom

China's 763 funds operated by 61 fund management companies racked up combined losses of 125.4 billion yuan ($19.6 billion) in the first half of 2011, said the Beijing-based Tianxiang Investment Consulting Co. Ltd.

The biggest losers were the 377 stock funds that suffered a combined loss of 78.9 billion yuan ($12.3 billion), as continued tightening policies drained market liquidity and depressed confidence of investors. The Shanghai Composite Index tumbled nearly 26 percent from January to June.

Worse still, all 61 fund management companies spilled some red ink during the January-to-June period, said Tianxiang Investment.

Looking ahead, fund mangers are divided on where the market is heading. "There are no signs that policymakers will relax their monetary stance since inflation remains stubborn," said Deng Chunming, a fund manager with the Shenzhen-based Invesco Great Wall Fund Management Co. Ltd. "That means the market will continue to reel from a tightening monetary environment."

But Shao Jian, a fund manager of the Beijing-based Harvest Fund Management Co. Ltd., believes the market will draw strength from solid domestic demands and improved stock valuations.

"Moreover, economic rebalancing of the country will present investment opportunities in the pharmaceuticals, advanced manufacturing and service sectors," he said.

"China's stock markets are already past the worst period as investment in affordable housing will offset a slump in economic growth," said a report of the Beijing-based Citic Securities Co. Ltd.

"Although the monetary policy won't change its direction, the possibility of more tightening is decreasing," it said.

Industrial Slowdown

The industrial sector seems to be losing some strength as its profit growth slows down.

In the first seven months of 2011, industrial enterprises above the designated size—annual sales revenue of 20 million yuan ($3.125 million), totaled 2.8 trillion yuan ($437.5 billion), an increase of 28.3 percent year on year, 0.4 percentage points slower than the January-to-June period, said the National Bureau of Statistics.

Their revenues went up 29.8 percent to 45.85 trillion yuan ($7.2 trillion).

Profits of private businesses rose 46.6 percent to 760.8 billion yuan ($118.9 billion), the fastest growth compared with a 20.4-percent increase for state-owned enterprises and 14.4 percent for foreign-funded companies.

Among the 39 industries surveyed, 37 sectors reported profit growth while two sectors—communications equipment and electronics manufacturing, and petroleum refining, coking and nuclear fuel processing— experienced profit declines.

"The slowdown is expected to continue due to acute cost inflation and sluggish overseas demands," said Li Maoyu, an analyst with the Hubei-based Changjiang Securities Co. Ltd.

COSCO's Pains

China COSCO Holdings Co. Ltd., a shipping conglomerate, struggles to make ends meet as fragile world economy dealt a heavy blow to the shipping industry.

The company said it suffered losses of 2.71 billion yuan ($423.4 million) in the first half of 2011, compared with a net profit of 3.53 billion yuan ($551.6 million) in the same period last year. The revenues also plunged 10.4 percent year on year to reach 34.23 billion yuan ($5.35 billion).

COSCO operates the world's largest bulk cargo fleet and is the world's fifth largest container shipping firm.

As uncertainties clouded the world economy, COSCO's revenue from container lines and dry bulk operations, transporting bulk commodities such as iron ore and coal, declined 4.2 percent and 27 percent respectively. More disturbing, though, is the overcapacity problems as the large order of vessels made three years ago finally hits the oceans.

The Baltic Dry Index, a proxy for shippers' costs and profits, averaged at 1,372 points during the first six months, nosediving 56.7 percent from a year ago.

"A substantial turnaround is less likely this year given the depth of industrial downturn," said Luo Lei, a transport analyst with the China Securities Co. Ltd.

"One cause for concern is international crude prices, which make up 19.3 percent of COSCO's overall costs, have climbed 20 percent so far this year," he said.

Etiquette Training

Knigge Akademie, an etiquette training company based in Germany, issued a certificate to Beijing Chateau Changyu AFIP Global, a European-style hotel, which successfully completed etiquette training lessons on August 26.

The training program gave employees of the hotel an opportunity to learn Western etiquette in a Western setting without going abroad.

Knigge Akademie offered vibrant, dynamic and authentic etiquette classes to give the employees a more comprehensive and in-depth look at the full picture of Western etiquette, from how to greet a customer to how to open a bottle of wine, said Sun Hongbo, General Manager of Beijing Chateau Changyu AFIP Global.

Knigge Akademie, which has already gained a firm foothold in European market, opened its first branch in Beijing six months ago.