China’s industrial profits have experienced a decline in March, signaling a slowdown in growth compared to the first two months of the year. This data raises doubts about the strength of the recovery for the world’s second-largest economy. Official data from the National Bureau of Statistics (NBS) shows that cumulative profits of China’s industrial firms rose by 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter from a year earlier, which is slower than the 10.2% increase in the first two months.
The 3.5% year-on-year decline in profits for March is particularly concerning as it indicates a reversal in the positive trend that was observed earlier. The high-tech manufacturing industry led the growth with a 29.1% rise in profits in the first quarter, highlighting the uneven nature of the recovery. However, profits in the automobile manufacturing industry grew by 32.0% in January-March, showing some pockets of resilience in the face of overall slowdown.
The recent China Auto Show in Beijing showcased the latest electric vehicles (EVs), underscoring the country’s shift towards sustainable transportation. Despite the growth in profits for the industry, companies like CATL, a Chinese electric vehicle battery manufacturer, have seen a decline in revenue due to slowing demand and increased competition. This indicates the challenges that companies are facing in maintaining profitability in the current market conditions.
Outlook and Future Policy
The outlook for China’s industrial sector remains uncertain, with Fitch recently cutting its credit rating outlook to negative. This move reflects the risks to public finances as the economy undergoes a transition to new growth models. Bruce Pang, Chief Economist at JLL, suggests that future policies should focus on stimulating demand rather than just supply-side measures. The key to sustaining growth in the industrial sector lies in addressing the underlying demand issues that are currently impeding profitability.
The slowdown in China’s industrial profits raises concerns about the overall health of the economy. While certain sectors like high-tech manufacturing have shown resilience, challenges persist in industries like automobiles. The shift towards electric vehicles and sustainable practices presents both opportunities and challenges for companies operating in China. Moving forward, policymakers and businesses will need to collaborate to address the demand-side issues and ensure sustainable growth in the industrial sector.