Soft demand, high costs dampen China's industrial profits

BEIJING, California: As the world's second-largest economy is still struggling to fully recover from the long-term effects of COVID-19, most notably soft demand and high costs, Chinese industrial firms' profits continued to dampen during the first two months of 2023.

National Bureau of Statistics (NBS) data released this week showed a sharp 22.9 percent contraction after a 4.0 percent fall in industrial profits in 2022.

The decline is due to ongoing soft demand, despite a rise in industrial output, said NBS statistician Sun Xiao on the bureau's website.

Zhou Maohua, analyst at China Everbright Bank, said that due to a moderation in overall demand, production costs, fading auto subsidies and price wars, there was a decline in auto sector profits, which significantly stifled manufacturing profits.

"Currently, international commodity prices remain at high levels and overseas demand is still on a downtrend," Zhou said, as quoted by the Associated Press.

According to a breakdown of the $128.92 billion profits, foreign firms recorded a 35.7 percent decline in profits, while private-sector firms reported a 19.9 percent drop in profits.

This week's data is in line with a series of economic indicators that show an uneven recovery after the three-year battle against the COVID-19 pandemic.

Data released earlier this month indicated that factory output growth accelerated to 2.4 percent in January-February, slightly less than a 2.6 percent rise forecasted in a Reuters poll of analysts.

Additionally, Chinese property investment continued to decline despite robust government support, but retail sales returned to growth.

At this month's annual parliamentary gathering, Beijing had aimed to return the economy to recover and set a modest growth target of some 5 percent for this year.

To help support the country's economic recovery, this month China's central bank unexpectedly reduced the amount of cash that banks must hold as reserves, for the first time this year.