China's Industrial Profits Slow in Q1 2024, Raising Doubts About Economic Recovery

China's industrial profits rose 4.3% in the first quarter of 2024, slower than the 10.2% increase in the first two months, indicating an uneven economic recovery. Profits fell 3.5% year-on-year in March, complementing other economic indicators that pointed to weak domestic demand despite solid first-quarter GDP growth.

The slowdown in industrial profits raises concerns about the strength of China's economic recovery, with senior officials at the central bank signaling caution over the boost to credit as real credit demand weakens. The high-tech manufacturing industry and the automobile manufacturing industry led the growth, with profits rising 29.1% and 32.0% respectively in the first quarter. However, the recovery of firms' profits was uneven.

Why this matters: The slowdown in profit growth raises doubts about the repair of the asset and liability structure of manufacturing firms and their willingness to expand investment. It also highlights the increasing uncertainty China's economy faces in its shift to new growth models.

The credit rating agency Fitch has cut its outlook on China's sovereign credit rating to negative, citing risks to public finances. Chinese electric vehicle battery company CATL saw its profit swing back to growth in the first quarter, but its revenue slid for the second consecutive quarter amid slowing demand and intensified competition.

The industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.76 million) from their main operations. Experts suggest that future policy should focus on the demand side rather than the supply side to improve business conditions for manufacturing enterprises. "The reading indicates an uneven recovery for the world's second-largest economy," the National Bureau of Statistics said in a statement.

Key Takeaways

• China's industrial profits rose 4.3% in Q1 2024, slower than 10.2% in Jan-Feb.
• Profits fell 3.5% YoY in March, indicating weak domestic demand despite solid GDP growth.
• High-tech and auto manufacturing led growth, but recovery was uneven across industries.
• Slowdown raises concerns about asset/liability structure and willingness to expand investment.
• Fitch cut China's credit outlook to negative, citing risks to public finances.