Employees work on an electronics production line on February 2, 2023, at a factory in Longyan, Fujian Province, China.
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Official data showed on Saturday that profits of industrial companies in China fell in the first four months of 2023, as companies continued to suffer from margin pressures and weak demand amid a faltering economic recovery.
Profits fell 20.6% in the January-April period from a year earlier, compared with a 21.4% decline in the first three months, according to data from the National Bureau of Statistics (NBS).
In April alone, industrial firms reported an 18.2% year-over-year profit decline, according to the Office for National Statistics, which only occasionally provides monthly figures. Profits shrank 19.2% in March.
“Overall, today’s data shows that industrial enterprises, especially equity-owned companies, are still affected by a combination of unfavorable factors such as the fundamental impact, short-term pressure on the economic recovery and the downward trend in the PPI (product) price index,” said Bruce Pang, chief economist at Jones. Lang LaSalle.
Chinese companies are grappling with weak demand at home and declining demand in the country’s key export markets. Producer contraction deepened in April, with the producer price index falling at the fastest clip since May 2020.
Lenovo, the world’s largest PC maker, said this week that quarterly revenue and profit fell in the January-March period, and it cut 8% to 9% of its workforce to cut costs, as global demand for personal computers continued to slump.
Producers of steel and other industrial metals are also being hit. Prices for steel reinforcing bars used in construction hit a three-year low this week, and only a third of the country’s factories are currently operating at a profit, according to consulting firm Mysteel.
“There is still some pressure in May due to the divergence between buying and selling prices, with steel prices declining in the month due to a slower-than-expected recovery in demand,” Baowu Steel, a subsidiary of the world’s largest steelmaker – China Baowu Steel Group, said in an interactive platform for investors. On May 22nd.
Foreign companies saw their earnings drop by 16.2% in the January-April period compared to a year earlier, while private sector companies recorded a decline of 22.5%, the data detailed.
Earnings of 27 of 41 major industrial sectors declined during the period, with ferrous metal smelting and rolling processing posting the largest decline, at 99.4%.
In the next phase, China will focus on restoring and expanding demand, improving the level of production and marketing, and enhancing business confidence, said Sun Xiao, a statistician with the National Bureau of Statistics.
The bleak earnings readings came after a raft of economic indicators for April, which includes industrial production, retail sales and real estate investment, indicated that the recovery in the world’s second-largest economy is losing momentum.
Beijing has set a modest growth target of around 5% for the year. Signs of a rapid recovery following the abrupt end of Covid restrictions in the country late last year prompted several institutions including the World Bank to raise growth estimates for China for 2023.
However, some investment banks recently lowered their forecasts for growth in China for 2023 after disappointment in the April data, with Nomura cutting its forecast to 5.5% from 5.9% previously and Barclays revising its outlook to 5.3% from 5.6%.
Earlier this month, Premier Li Qiang pledged more targeted measures to expand domestic demand and stabilize external demand in a bid to promote a sustainable economic recovery.
The industry profit figures cover companies with annual income of at least 20 million yuan ($2.89 million) from their main operations.