Chinese industrial profits sink in sluggish start to the year

By Ambar Warrick

Investing.com -- Chinese industrial profits fell sharply in the first two months of 2023, data showed on Monday, as a recovery in manufacturing activity was largely offset by softening demand in the face of slowing global growth and lingering aftereffects of the COVID pandemic.

Industrial profits dropped 22.9% in the year to February, data from the National Bureau of Statistics (NBS) showed. This compared with a 4% drop in industrial profits through 2022.

While manufacturing output rebounded with the lifting of anti-COVID measures earlier this year, demand did not see a corresponding recovery. This largely impacted the margins of local manufacturers. particularly revenue growth.

This was also indicated in weak producer price inflation, which unexpectedly shrank further in February.

The Chinese economy saw a somewhat mixed recovery this year with the lifting of COVID restrictions. While local business activity roared back, demand still remained weak, with Chinese imports and inflation trending well below expectations.

Worsening economic conditions across the globe also hampered overseas demand for Chinese exports, which in turn weighed on industrial profits.

The Chinese economy also faces some headwinds from slow local spending and a weak real estate sector, with some facets of the economy still struggling even after the lifting of anti-COVID measures.

Still, the Chinese government is banking on a pickup in local consumption and infrastructure spending to drive an economic recovery this year. While the government forecast GDP growth of 5% in 2023, research analysts are more bullish on a Chinese recovery.

Goldman Sachs expects the Chinese economy to grow 6% this year.

Monday's data marks the first reading on industrial profits from China this year, as the government usually clubs January and February to smooth over disruptions from the Lunar New Year holiday.

The country had stopped releasing monthly readings on industrial profits in mid-2022.