China industrial profits keep plunging as prices drop

BEIJING – 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-to-March period declined 21.4 per cent from a year earlier, the National Bureau of Statistics (NBS) said on Thursday. The drop narrowed only slightly from a fall of 22.9 per cent in the first two months of 2023. The NBS did not publish single-month data.

“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.”

While factory activity has been improving, it has been tough for companies to pull themselves out of last year’s deep, Covid-19-induced slump. Exports rebounded last month, largely due to resilient demand from South-east 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.

Foreign firms continue to lag behind other companies, although the pace of the fall in their profits is improving – a 24.9 per cent fall in the first three months compared with a 35.7 per cent decline in January and February.

Profits at private firms fell 23 per cent in the January-to-March period, while those at state-owned enterprises dropped 16.9 per cent.

The world’s second-largest economy recovered at a faster pace than expected in the first quarter, with several economists upgrading their growth forecasts for the year after the data. But the strength of the rebound is under scrutiny as the global environment remains uncertain.

Beijing is targeting economic growth of around 5 per cent for the year, aided in large part by a rebound in consumer demand and stronger infrastructure investment.