China’s industrial profit falls 18% in April as demand falls By Reuters

© Reuters. FILE PHOTO: A worker welds the steel rim of a bicycle at a sports equipment factory in Hangzhou, Zhejiang province, China, 2 September 2019. China Daily via REUTERS

BEIJING (Reuters) – China’s industrial profits fell sharply in the first four months of 2023, official data showed on Saturday as companies continued to struggle with pressure on margins and weak demand amid a faltering economic recovery.

According to the National Bureau of Statistics (NBS), in January-April, profits fell by 20.6% year-on-year, compared with a 21.4% decline in the first three months.

In April alone, industrials reported an 18.2% year-on-year drop in profits, according to NBS, which only occasionally releases monthly data. In March, profits fell by 19.2%.

“Overall, today’s data shows that industrial enterprises, especially private and equity enterprises, continue to suffer from a combination of adverse factors such as the base effect, short-term pressure on the economic recovery, and a downward trend in PPI (producer prices),” said Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:).

Chinese companies are struggling with both weak domestic demand and declining demand in the country’s main export markets.

Producer deflation intensified in April, with the Producer Price Index (PPI) falling at the fastest pace since May 2020.

Lenovo, the world’s largest PC maker, said this week that quarterly revenue and profit fell in January-March and the company cut 8% to 9% of its workforce to cut costs as global demand for personal computers (PCs) continues to fall.

Manufacturers of steel and other industrial metals are also suffering. Prices for rebar used in construction hit their lowest level in three years this week, and only a third of the country’s factories are currently operating at a profit, according to consulting firm Mysteel.

“There is still some pressure in May due to the difference between the bid and ask prices, with steel prices falling this month due to a slower-than-expected recovery in demand,” said Baosteel, a subsidiary of the world’s largest steel manufacturer in China. This was announced by Baowu Steel Group on an interactive platform for investors on May 22.

According to the breakdown of the data, the profit of foreign companies in January-April decreased by 16.2% compared to a year earlier, while private sector companies recorded a fall of 22.5%.

Profits declined in 27 out of 41 major industries during the reporting period, with ferrous smelting and the rolling industry recording the biggest decline of 99.4%.

In the next phase, China will focus on recovering and expanding demand, further improving production and marketing levels, and boosting business confidence, NBS statistician Sun Xiao said.

The dismal earnings figures came after a series of April economic data covering industrial production, retail sales and real estate investment showed that the recovery in the world’s second-largest economy was losing momentum.

Beijing has set itself a modest growth target of around 5% for this year. Signs of a quick recovery following the abrupt easing of COVID-19 restrictions in the country late last year have prompted many institutions, including the World Bank, to raise their China growth estimates for 2023.

However, some investment banks have recently downgraded their 2023 growth forecasts for China after disappointing April data: Nomura cut its forecast to 5.5% from 5.9% earlier and Barclays (LON:) revised its forecast to 5. 3% from 5.6%.

Earlier this month, Premier Li Qiang vowed to take more targeted measures to expand domestic demand and stabilize external demand to promote a sustainable economic recovery.

Industrial profit figures cover firms with an annual income of at least 20 million yuan ($2.89 million) from their core business.

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