The Slowdown in China’s Industrial Profits

China’s industrial profits have shown a smaller increase in the first quarter compared to the initial two months of the year. The latest data from the National Bureau of Statistics revealed a 4.3% rise in profits from a year earlier, which is significantly lower than the 10.2% increase seen in the first two months of the year. Moreover, profits took a downturn in March, falling by 3.5% year-on-year. This slowdown in industrial profits adds to the evidence of an uneven recovery for the world’s second-largest economy.

The data on industrial profits in China is in line with other economic indicators for March, such as retail sales and industrial output, which have all pointed towards weak domestic demand despite solid first-quarter GDP growth. The initial signs of the economy gaining momentum in the beginning months of the year have now given way to concerns over lacklustre demand domestically. This shift in sentiment is concerning for the overall economic outlook of China.

Risks and Challenges Ahead

As the economy grapples with the impact of the pandemic and shifts towards new growth models, there are increasing risks and challenges on the horizon. The recent caution from senior officials at China’s central bank regarding credit boost reflects the weakening real credit demand. Furthermore, the challenges faced by companies like CATL, a Chinese electric vehicle battery company, with sliding revenues amidst slowing demand and fierce competition, highlight the broader issues in the industrial sector.

The recent move by Fitch to cut China’s sovereign credit rating outlook to negative underscores the growing concerns over public finances and economic uncertainties in the country. The transition to new growth models and the ongoing challenges in domestic demand are likely to weigh on the overall performance of China’s industrial sector and the economy as a whole. It is crucial for policymakers and industry leaders to address these issues proactively to support sustainable growth and development in the long term.