Updated April 27th, 2024 at 14:04 IST

China's March industrial profit drop casts doubt on economic recovery

China's industrial profits rose 4.3% to $207.0 billion in Q1, slower than the 10.2% increase in the first two months, with March seeing a 3.5% YoY drop.

Reported by: Business Desk
China's Q1 downturn | Image:Shutterstock

China's Q1 downturn: China's industrial profits in the first quarter have stirred concerns about the pace of economic recovery, as data released by the National Bureau of Statistics (NBS) showed a decline in March and a slowdown in growth compared to the first two months of the year.

According to NBS, cumulative profits of China's industrial firms increased by 4.3 per cent to 1.5 trillion yuan ($207.0 billion) in the first quarter compared to the same period last year. However, this growth rate was slower than the 10.2 per cent rise recorded in the first two months of the year. In March alone, profits fell by 3.5 per cent YoY.


Domestic demand weakness

This data raises doubts about the strength of the economic recovery in the world's second-largest economy, especially considering other indicators such as retail sales and industrial output for March, which also pointed to weak domestic demand despite solid first-quarter GDP growth.


Bruce Pang, Chief Economist and Head of Research in Greater China at JLL, highlighted that if profit growth continues to slow, it could affect manufacturing firms' ability to repair their asset and liability structures and their willingness to invest further.

The high-tech manufacturing industry led profit growth in the first quarter, with a 29.1 per cent increase, according to NBS. However, the recovery in profits was uneven across different sectors. For instance, profits in the automobile manufacturing industry grew by 32.0 per cent YoY in January-March.


Despite the emphasis on electric vehicles (EVs) at the recent Beijing auto show, where major manufacturers showcased their latest EV models, Chinese electric vehicle battery company CATL experienced profit growth but a decline in revenue for the second consecutive quarter due to slowing demand and increased competition.

Fitch recently downgraded its outlook on China's sovereign credit rating to negative, citing risks to public finances amid increasing uncertainty in the transition to new growth models.


Demand over supply

Looking ahead, Pang suggested that while policies such as large-scale equipment renewal may improve business conditions for manufacturing enterprises, the focus should shift towards stimulating demand rather than just supply-side measures.


Notably, NBS did not disclose the names of companies included in the profit tally or the total number of firms covered by the data. Profits had plummeted by 21.4 per cent YoY in the first quarter of last year due to the impact of the COVID-19 pandemic.


Published April 27th, 2024 at 14:04 IST