Daily Management Review

April Saw An 18% Decline In China's Industrial Profits Due To Weak Demand


April Saw An 18% Decline In China's Industrial Profits Due To Weak Demand
According to government data released during the week end, profits at China's industrial companies plunged in the first four months of 2023 as businesses battled margin pressures and weak demand in the midst of a sputtering economic recovery.
According to figures from the National Bureau of Statistics (NBS), profits dropped by 20.6% from January through April compared to the same period last year, less than the 21.4% drop seen in the first three months.
According to the NBS, which sporadically releases monthly numbers, industrial enterprises reported an 18.2% decrease in profit in April alone when compared to the same month last year. March saw a 19.2% decline in profits.
“Overall, today’s data shows that industrial enterprises, especially private and equity-owned enterprises, continue to be affected by a combination of unfavourable factors such as the base effect, short-term pressure on the economic recovery and the downward trend of PPI (producer prices),” said Bruce Pang, chief economist at Jones Lang Lasalle.
Chinese businesses are having trouble keeping up with both poor domestic demand and declining export demand. The producer price index (PPI) fell at its quickest rate since May 2020 in April, deepening the producer deflation.
As the demand for personal computers (PCs) continues to decline globally, Lenovo, the largest PC manufacturer in the world, reported this week that its quarterly revenue and profit sank in January through March and that it had eliminated 8% to 9% of its employees to decrease expenses.
Steel and other industrial metal producers are also suffering. According to consultancy Mysteel, prices for steel reinforcing bars used in construction fell to their lowest level in three years this week, and only a third of the nation's mills are presently turning a profit.
“There is still some pressure felt in May due to the difference between the purchase and sales prices, with steel prices falling in the month because of the slower-than-expected demand recovery,” Baosteel, a subsidiary of the world’s largest steelmaker-China Baowu Steel Group, said in an investor interactive platform on May 22.
According to a breakdown of the statistics, private-sector enterprises had a 22.5% decline in profits from January through April compared to the same period last year, while foreign companies experienced a 16.2% decline.
27 out of 41 significant industrial sectors saw a decline in profits during the time period, with the ferrous metal smelting and rolling processing sector reporting the largest decline at 99.4%.
According to NBS statistician Sun Xiao, China would prioritise improving production and marketing, growing demand, and boosting company confidence in the upcoming stage.
The dismal profit readings followed a series of April economic data that indicated the second-largest economy in the world's recovery is stalling, including industrial output, retail sales, and real estate investment.
Beijing has set a moderate growth goal for this year of about 5%. Many organisations, including the World Bank, have increased their China growth projections for 2023 in response to early indications of a swift recovery following the abrupt termination of Covid limits in the country late last year.
Nevertheless, some investment banks recently reduced their projections for China's growth in 2023 in response to the disappointing April statistics, with Nomura lowering its expectation to 5.5% from 5.9% before and Barclays lowering its outlook to 5.3% from 5.6%.
Premier Li Qiang promised additional targeted actions earlier this month in an effort to support a long-lasting economic recovery. These actions included increasing domestic demand and stabilising external demand.
Industrial profit figures apply to companies with major operations that generate at least 20 million yuan ($2.89 million) in annual sales.