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Chinese factory profits fell from their highest level in two years, official data showed, underscoring fears that industrial overcapacity could complicate Beijing’s efforts to revive momentum in the world’s second-largest economy.
Industrial profits of major Chinese companies fell 3.5 percent in March from a year earlier, the National Bureau of Statistics reported Saturday. During the first quarter, industrial profits increased by 4.3 percent compared to the same period in 2023.
The March results were a blow to Beijing after industrial profits jumped 10 percent in the January-February period to their highest level in 25 months, raising hopes that the slowdown in the industrial sector is coming to an end. its end.
Analysts at Goldman Sachs said industrial profits and revenues fell “significantly” in March and pointed to falling margins as a problem for Chinese manufacturing.
The latest signs of strain in China’s economy come as U.S. and European officials have sounded the alarm over Chinese policymakers’ plans to use the country’s manufacturing clout, particularly through exports, to boost growth.
During a three-day trip to China last week, US Secretary of State Antony Blinken warned President Xi Jinping’s administration against heavy state subsidies for the industry, saying there was already a “obvious gap” between Chinese production and global demand.
Below-market prices for Chinese goods could have “potentially devastating effects” on workers, communities and businesses abroad, Blinken said.
China’s Foreign Ministry said Friday that officials “refuted” Washington’s talk of overcapacity in meetings with Blinken, and dismissed criticism of China’s industrial policy as another example of U.S. protectionism and repression of Chinese development, according to state media.
China has set a growth target of around 5% for 2024, the same as last year – the lowest in decades – but analysts have warned that figure remains ambitious amid widespread deflationary pressure and would require increased recovery support.
“Favorable supply chain conditions, ample inventories and industrial overcapacity in China will help contain core goods inflation,” Capital Economics analysts Simon MacAdam and Ariane Curtis wrote in a research note. .
Analysts at Westpac, Australia’s bank, said steel industry exports have provided a significant “relief valve” for overcapacity, noting that China is approaching record steel export levels from 2015 , despite a growing global backlash to the dumping of surplus products overseas.
The NBS struck a more positive tone on Saturday, reporting that in the first quarter, the electronics industry’s profits rose 82.5 percent year-on-year, while the automobile industry’s profits rose 32 percent. hundred for the same period.
State media also expressed confidence in Beijing’s plan to further boost consumer spending by subsidizing trade-ins of older cars and appliances.
