China’s Industrial Profits Face Downward Trend Due to Weakened Demand

Profits of industrial firms in China continued to decline during the first four months of the year, reflecting a decrease in demand and worsening deflation in the country’s manufacturing sector. Data released by the National Bureau of Statistics revealed that industrial profits dropped by 20.6 percent in the January-April period compared to the same timeframe in 2022. Although the decline was slower than the 21.4 percent decrease observed in the first quarter, it still indicates a significant slump.

For the month of April alone, profits saw a slight improvement, rising by 3.7 percent compared to the previous year. This modest growth, however, followed a sharp decline of 19.2 percent in March. Bruce Pang, the chief economist for Greater China at Jones Lang LaSalle Inc., explained that the weak recovery of effective demand has hindered the capacity utilization rate, making it challenging to reduce costs and delaying a rebound in industrial profits. Pang suggested that a return to positive year-on-year growth may not occur until the fourth quarter, emphasizing the need for further policy support and stimulus measures.

China’s economic recovery from the impact of the COVID-19 pandemic has shown signs of faltering, as recent data reveals weakening export growth and deepening deflation in the industrial sector, particularly in April. The declining profits not only raise concerns about the future outlook of the economy but also dampen business sentiment, discouraging investments.

Despite some improvement in factory activity, industrial enterprises in China are still struggling to recover from the slump caused by the pandemic. The sluggish demand for goods, with the rebound primarily driven by consumer spending in services, has contributed to the challenging environment. Additionally, foreign purchases of Chinese products are slowing as developed economies, including the United States, seek to reduce their exposure to risks associated with China.

Furthermore, deteriorating producer deflation has hindered factories’ ability to raise prices, putting further pressure on profitability. The producer price index experienced a significant decline of 3.6 percent in April compared to the previous year, marking the largest drop since May 2020.

Foreign firms operating in China faced a 16.2 percent decline in profits during the January-April period, while private firms experienced a 22.5 percent drop and state-owned enterprises saw a 17.9 percent decrease, according to the data provided by the National Bureau of Statistics. These figures indicate the widespread impact of the profit downturn across various sectors of the economy.

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