China’s factory profits decline due to overcapacity, hindering economic recovery

Factory profits in China have taken a hit, signaling potential trouble for the world’s second-largest economy. According to official data, industrial profits at large Chinese companies dropped by 3.5% in March compared to the previous year. This decline comes after a promising start to the year, with industrial profits rising by 4.3% in the first quarter.

The decrease in profits has raised concerns about industrial overcapacity in China, making it difficult for Beijing to stimulate economic growth. Goldman Sachs analysts noted that both profits and revenue fell notably in March, pointing to lower margins as a major issue for Chinese industry.

The news of declining profits comes at a time when US and European officials are expressing worries about China’s manufacturing practices. US Secretary of State Antony Blinken recently cautioned against heavy state subsidies for Chinese industries, warning of potential negative effects on global markets.

Despite these challenges, China has set a growth target of around 5% for 2024, the same as the previous year. Analysts, however, are skeptical about achieving this target due to deflationary pressures and the need for increased stimulus measures.

On a more positive note, the National Bureau of Statistics reported significant growth in profits for the electronic and auto manufacturing industries in the first quarter. State media also expressed confidence in Beijing’s efforts to boost consumer spending through subsidies for trade-ins of older cars and household appliances.

Overall, the latest data on factory profits in China paints a complex picture of the country’s economic landscape, with both challenges and opportunities ahead.