China’s industrial profits posted smaller gains in the first quarter compared to the first two months, according to official data released by the National Bureau of Statistics (NBS). The data showed a 4.3% increase in profits in the first quarter from a year earlier, which was slower than the 10.2% rise in the first two months. Furthermore, profits fell by 3.5% year-on-year in March, indicating a downward trend that raised concerns about the state of the economy.
The slower growth in industrial profits was accompanied by other economic indicators for March, such as retail sales and industrial output, which all pointed to frail domestic demand despite solid first-quarter GDP growth. This suggested that while the economy had shown signs of gaining momentum in the early months of the year, it was now facing challenges related to lacklustre demand at home.
Senior officials at China’s central bank recently expressed caution over the boost to credit, as real credit demand weakens. This indicated a growing awareness of the risks associated with excessive lending and its potential impact on the economy. Additionally, Chinese electric vehicle battery company CATL reported a swing back to profit growth in the first quarter, but its revenue continued to decline for the second consecutive quarter due to slowing demand and intensified competition in the market.
Fitch’s decision to cut its outlook on China’s sovereign credit rating to negative further underscored the uncertainties facing the economy. The rating agency cited risks to public finances as China transitions to new growth models, highlighting the challenges ahead for the country. The industrial profit numbers released by the NBS cover firms with annual revenue of at least 20 million yuan from their main operations, reflecting the broader challenges facing the industrial sector in China.
The data on China’s industrial profits for the first quarter paint a complex picture of the country’s economic recovery. While there were initial signs of growth and momentum, the slower pace of profit gains and concerns over domestic demand indicate that challenges lie ahead. As China navigates through these uncertainties, it will be crucial for policymakers and businesses to adapt to the changing landscape and find new avenues for growth and development.