China’s industrial profits slide as demand weakens

PROFITS at industrial firms in China kept falling in the first four months of the year, underlining cooling demand and deepening factory-gate deflation in the world’s second-largest economy.

Industrial profits fell 20.6 per cent in the January-April period from the same time frame in 2022, data published on Saturday (May 27) by the National Bureau of Statistics (NBS) showed. The drop was slower than a decline of 21.4 per cent logged in the first quarter.

Profits for the single month of April were down 18.2 per cent from a year earlier, according to NBS figures. That compared with March’s decline of 19.2 per cent.

“The weak recovery of effective demand has continued to weigh on the capacity utilisation rate, which, coupled with the difficulty to bring down costs, means more patience is needed” for the rebound in industrial profit, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. “The cumulative year-on-year growth may not return to the positive territory until the fourth quarter.”

More policy support and stimulus are needed for a full-year gain in industrial profit, Pang said.

China’s post-Covid recovery is faltering, recent data has shown, with export growth weakening and industrial deflation worsening in April. Falling profits bode ill for the economy’s outlook, and are set to weigh on already weak sentiment among businesses – thus holding them back from investing.

Industrial enterprises in China have been struggling to rebound from last year’s Covid-induced slump, even though factory activity has picked up somewhat.

Still, demand for goods remains sluggish, with the economic rebound mainly led by consumer spending in services. Foreign purchases of Chinese products are slowing as the US and other developed economies seek to “de-risk” from China.

Deteriorating producer deflation has also undercut factories’ ability to boost prices, hurting profits. The producer price index fell 3.6 per cent on year in April, the biggest decline since May 2020.

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Foreign firms registered a 16.2 per cent drop in profits in the January-April period, compared with a 24.9 per cent decline in the first quarter. Profits at private firms fell 22.5 per cent in the first four months, while those at state-owned enterprises slipped 17.9 per cent, according to NBS data. BLOOMBERG