In May, China’s industrial profits experienced a significant slowdown in growth, underscoring ongoing challenges within the world’s second-largest economy. Official data from the National Bureau of Statistics (NBS) revealed that industrial earnings increased by just 0.7% year-on-year, a sharp deceleration from the 4% rise observed in April. Moreover, profits for the first five months of the year showed a moderated increase of 3.4%, down from 4.3% in the January-April period.
This slowdown comes amidst a backdrop of mixed economic signals. While exports remained robust, China’s extensive real estate sector showed little response to recent government efforts aimed at stabilization. This lackluster performance has had ripple effects across related industries, from construction materials to consumer goods, dampening overall consumer confidence in the process.
According to NBS statistician Yu Weining, the primary culprit behind the sluggish profit growth is insufficient domestic demand, exacerbated by short-term factors such as declining investment returns. The automotive sector, crucial for discretionary consumer spending, particularly struggled with a profit margin of 4.6% in the first four months, below the 5% average for the broader industrial sector. This sector’s challenges were compounded by fierce competition domestically, prompting price reductions that further squeezed profit margins.
Zhou Maohua, a macroeconomic researcher at China Everbright Bank, pointed out that intense competition among industrial firms led to price cuts, despite slight increases in production and operating costs. This pricing pressure contributed to the overall decline in industrial profit growth.
In response to weakening domestic demand, China’s state planner recently urged local governments to relax restrictions on car purchases. These measures are part of broader efforts to bolster economic activity amid rising global uncertainties and geopolitical tensions.
A breakdown of the NBS data reveals varied profit performances among different types of enterprises: state-owned firms reported a 2.4% decline in profits over the first five months, while foreign companies recorded a 12.6% gain. Meanwhile, private-sector firms saw a modest increase of 7.6% in profits during the same period.
Overall, the latest industrial profit figures highlight the delicate balancing act facing Chinese policymakers as they navigate through economic headwinds, striving to stabilize growth while managing external pressures and internal economic challenges.