SAIC, which runs vehicle manufacturing ventures with General Motors and Volkswagen, said on Wednesday it earned 1.45 billion yuan ($212 million) during the six-month period, compared with 1.97 billion yuan a year earlier.

Analysts said the results were skewed by a 1.18 billion yuan write-off for its loss-making subsidiary Ssangyong Motor, which has been in court receivership since February.

The auto maker was forecast to make a 2.95 billion yuan net profit in the period, presuming no Ssangyong write-off, according to four analysts polled by Reuters. Subtracting the write-off, the forecast would have called for a profit of 1.77 billion yuan.

SAIC did not provide earnings guidance for the rest of the year but said the market situation was generally favourable despite uncertainties, including an insufficiently solid foundation for the country's economic recovery.

Analysts were more upbeat about its full-year outlook, given robust auto demand and a low comparative base in 2008, when the automaker was bogged down by a 3.08 billion yuan write-off for the South Korean sport utility vehicle maker.

"Ssangyong is really a headache for SAIC. But its exposure to Ssangyong this year will be much less as the bulk of it was taken care of last year," said Qin Xuwen, an industry analyst with Orient Securities.

GOVERNMENT SUPPORT

SAIC's net profit for the second quarter came to 819 million yuan, up 13 percent from 725 million yuan a year ago, according to calculations from half-year and first-quarter figures.

China's auto market, which overtook the United States as the world's largest in January, has been a leading bright spot in the struggling global auto industry as government policy support spurs a pick-up in demand.

SAIC and its foreign partners have benefited significantly from the incentives, including a 50 percent cut in the sales tax on small cars, as well as subsidies for rural vehicle owners who trade in gas guzzlers for fuel-efficient models.

From January to June, SAIC sold 1.23 million vehicles, up 23.7 percent from a year earlier. Its share of the domestic market came to 20.1 percent, up 1.8 percentage points year-on-year, it said.

Sales of its own-brand Roewe and MG cars jumped 276 percent to more than 40,000 units, it said.

For all of 2009, it may sell more than 2 million vehicles, beating a conservative target of 1.8 million set at the start of the year, SAIC Chairman Hu Maoyuan said in June.

Turnover rose 6.85 percent in the first half to 61.59 billion yuan, or 52 percent of the full-year goal of 119.4 billion yuan.

Ssangyong was a major setback for SAIC, which may eventually lose its majority shareholding in its 51.33 percent-owned unit, according to a Ssangyong executive who asked not to be identified because of the sensitivity of the issue..

Earlier this month, Ssangyong workers ended a more than two-month violent protest and agreed to big lay-offs, but the outlook for the South Korean SUV maker remains murky amid uncertainties facing the struggling global industry.

SAIC's Shanghai-traded shares surged 8.55 percent to 18.66 yuan on Wednesday before the earnings announcement, outperforming a 1.78 percent gain in the benchmark index. They have risen nearly 250 percent so far this year, compared with a roughly 63 percent rise in the broader market.