Combined profits for the country's machinery industry are expected to grow 12 percent year-on-year this year, down from last year's 21.14-percent rise, said Cai Weici, vice president of the China Machinery Industry Federation (CMIF).

The sector, which accounts for about 19 percent of the country's total industrial output, will also see a sharp retreat in export growth this year, down to 15 percent from the 24.49-percent expansion registered last year, Cai said.

He attributed the pullback to the global economic downturn, weakening demand and continuously rising costs.

China's economic growth slowed last year, and is expected to ease further this year. The growth rate of its industrial value-added output is also expected to slow, to 11 percent this year from 13.9 percent in 2011.

In addition to the economic woes, the machinery industry will also have to deal with more trade protectionism measures from China's trade partners during the downturn, Cai said.

He said the Chinese government should stick to the opening-up policy while urging the country's trade partners to recognize its market economy status as soon as possible. Many trade partners do not recognize China as a market economy, making it easier for the World Trade Organization panels to rule that its companies dump goods on overseas markets.

Cai advised the country's machinery manufacturers to move up the value chain to boost profit margins.

According to CMIF statistics, the machinery sector's industrial output rose 25.06 percent year-on-year to 16.89 trillion yuan (2.68 trillion U.S. dollars) in 2011 after surging 33.93 percent in 2010. Profit growth in the sector fell to 21.14 percent in 2011 from 55.6 percent in 2010.

Some 8.39 percent of enterprises in the sector posted net losses in 2011, up by 1.82 percentage points compared with one year earlier.

Despite the growth declines in enterprises' profits and output, the sector's fixed assets investment maintained a fast increase in 2011, up 37.49 percent year-on-year and accelerating from 30.35 percent in 2010, Cai said.

He noted the high investment rate and slackened demand had exacerbated an already serious excessive capacity problem in the sector, which will be a long-term headache. However, he did not elaborate on how serious the problem was.

Instead of making investment on building redundant production facilities, machinery enterprises should enhance investment on research and development as well as personnel training, he said.

Last month, China published its first mid- to long-term industrial restructuring and upgrading plan, which prioritized the development of equipment manufacturing industry over the next four years.