Profits at industrial firms in China continued to plunge in the first three months of the year, as a pickup in factory production failed to offset a further decline in prices.
(Bloomberg) — Profits at industrial firms in China continued to plunge in the first three months of the year, as a pickup in factory production failed to offset a further decline in prices.
Industrial profits in the January-March period declined 21.4% from a year earlier, the National Bureau of Statistics said Thursday. The drop narrowed only slightly from a fall of 22.9% in the first two months of 2023.
Profits for the single month of March fell 19.2% from a year ago, according to official figures.
“The decline in industrial companies’ profits is still relatively big, and companies’ losses are still high,” NBS statistician Sun Xiao said in a statement accompanying the data. “We should continue focusing on expanding market demand, lift market confidence, improve companies’ expectations, better coordinate supply and sales, and push for industrial companies’ profits to rebound faster.”
There were some positive signs: Car industry profits grew 9.1% in March from a year earlier, driven by recovering car demand and rebounding sales, according to Sun. That reversed a 41.7% plunge in the January-February period.
Several consumer product manufacturing sectors also saw improvement, with the alcohol, beverage and refined tea industry recording a 39.9% jump in profits last month, according to the NBS statement.
While factory activity has been improving, it’s been tough for companies to pull themselves out of last year’s deep, Covid-induced slump. Exports rebounded last month, largely due to resilient demand from Southeast Asia and other markets, yet the pickup in industrial output fell short of expectations.
Producer deflation has also persisted, a sign that factories are unable to boost prices, which is weighing on their profits.
What Bloomberg Economics Says…
The demand for manufactured goods is still very weak, despite a rebound in overall economic growth that’s been led by services after the end of Covid Zero. With the recovery still patchy, the government must maintain a supportive policy stance and be prepared to offer more stimulus.
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David Qu, China economist
Foreign firms continued to lag behind other companies, though the pace of the fall in their profits is improving: a 24.9% fall in the first three months, compared to a 35.7% decline in January and February.
Profits at private firms fell 23% in the January-to-March period, while those at state-owned enterprises dropped 16.9%.
The world’s second-largest economy is recovering at a faster pace than expected, with several economists upgrading their growth forecasts for the year after better-than-expected first-quarter data. Still, the strength of the rebound is under scrutiny as the global environment remains uncertain.
Beijing is targeting economic growth of around 5% for the year, aided in large part by a rebound in consumer demand and stronger infrastructure investment.
(Corrects to note monthly figures for March were released.)
(Updates to include breakout data on car and consumer product industry profits.)
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