China industrial profits rise in April as demand recovers

BEIJING – Profits at China’s industrial companies increased in April as exports returned to growth in the same month and domestic demand improved, giving a boost to the economy.

Industrial profits at large-scale Chinese companies rose 4 per cent from a year earlier in April, according to data published by the National Bureau of Statistics (NBS) on May 27. The April uptick reversed a drop in March that ended seven straight months of increases.

China’s strong industrial output has become a source of tension with countries and regions including the United States and Europe, which have criticised Beijing for flooding the global market with cheap goods,

particularly in new energy sectors

.

Trade frictions look set to escalate as China has vowed to take resolute measures against new tariffs from the Biden administration and hinted at 25 per cent car tariffs that would affect European and US carmakers.

Profits in the first four months of 2024 rose 4.3 per cent compared with the same period in 2023, the same pace as in the first quarter.

The earnings of computer, communication and other electric equipment manufacturers surged 76 per cent in the first four months of the year from the same period a year ago, according to the NBS statement. The profits of general equipment manufacturers rose 6 per cent during the period.

Mr Eric Zhu, an economist with Bloomberg Economics, said: “The rise in China’s industrial profits in April after March’s decline is another sign manufacturing is getting back on a firmer footing. The trouble is this likely reflects support from exports and government-backed investment, not a broader recovery in private-sector demand.

“A lack of balance raises doubts about the sustainability of the earnings recovery – a prerequisite for companies to expand investment and hiring.”

NBS statistician Yu Weining said earnings of equipment manufacturers picked up due to the digitalisation of industries and the government’s equipment upgrade push. Consumer product manufacturing also saw improvement in profits as export growth quickened.

But the recovery of industrial firms needs to be further solidified as “domestic demand remains insufficient and the external environment is still complex and grim”, the statistician said in a statement accompanying the data.

Profits of foreign firms have led the rebound in 2024 so far, rising 17 per cent after heavy losses in 2023, while earnings of state-owned enterprises fell 2.8 per cent.

Chinese policymakers are relying on the country’s industrial producers to offset weak domestic demand and help the economy meet the growth target for 2024 of around 5 per cent.

But weaknesses within the world’s second-largest economy are weighing on activity.

In April, growth in consumer spending unexpectedly cooled to the slowest pace since 2022, while key metrics for the property sector deteriorated across the board. Factory-gate prices remained stuck in deflation, as they have been since late 2022, with the producer price index sliding 2.5 per cent in April from a year earlier.

All of this has left the authorities under pressure to prop up the domestic market with more fiscal and monetary stimulus.

Economists expect China’s central bank to cut interest rates in 2024, while the government has announced a programme to boost consumer spending on cars and household appliances by offering subsidies for trade-ins of older models.

Earlier in May, the government also

announced a broad rescue package for the property sector

, although analysts doubt the measures will be enough to end a years-long real estate slump. BLOOMBERG