Rebound in supply, demand shifts focus to employment stabilization

Profits at China's major industrial companies declined at a slower pace in March amid a steady recovery in industrial production, the National Bureau of Statistics said on Thursday.

Experts said the slower decline rate in March came amid the gradual rebound in both supply and demand, adding that more efforts should be made to further stabilize employment and ease burdens faced by enterprises, particularly small and medium-sized ones.

Given the normalization of production and life order, the gradual rebound in market demand and the weakening base effect, they said the industrial profits will gradually recover in the coming months.

NBS data showed that industrial enterprises with annual revenue of at least 20 million yuan ($2.89 million) each saw their total profits drop by 19.2 percent year-on-year in March after a 22.9 percent decline in the first two months of 2023.

China's first-quarter industrial profits came in at 1.52 trillion yuan, down 21.4 percent year-on-year, according to the NBS.

Sun Xiao, a statistician at the NBS, said while industrial profits declined sharply at a slower pace, the declining upstream prices can help improve the industrial profits in downstream industries.

In the first quarter, value-added industrial output grew by 3 percent year-on-year, while in the last quarter of 2022, it rose by 2.7 percent, and by 2.4 percent in the first two months of this year, the NBS said earlier.

In the next step, the country needs to make a big push to further expand market demand as well as boost market confidence and expectations, Sun said.

NBS data showed profits registered by the equipment manufacturing sector improved significantly, as the contraction narrowed by 19.1 percentage points in March from the first two months.

Notably, profits among vehicle manufacturing companies grew by 9.1 percent year-on-year in March, up from the 41.7 percent decline during the January-February period.

Yang Jinghao, chief economist at Concat Data Technology (Hangzhou) Co, said industrial profits declined sharply in the first three months with a high comparison base in the previous year, and the narrowing contraction points to the gradual recovery in the industry.

Zhou Maohua, an analyst at China Everbright Bank, said the year-on-year decline in first-quarter industrial profits was due to the fact that domestic demand is still in a phase of gradual recovery. Other factors are the drops in commodity prices like those of energy, low prices of industrial goods and base effects.

Zhou said he expects to see a stable improvement in the performance of industrial firms in the next few months given the stable recovery in demand and the government's effective measures to ease burdens on enterprises.

Zhou also said some industrial companies still face challenges and difficulties in terms of slowing overseas demand, high input costs, financing pressure and a more complicated international environment.

According to NBS data, manufacturing companies' total profits dipped 29.4 percent year-on-year in the first quarter, and the industrial profits in the private sector dropped 23 percent.

Ye Yindan, a researcher at the Bank of China Research Institute, said the government needs to make more efforts to support the development of industrial firms and ease their burdens, including further reductions in taxes and fees, temporary subsidies for some industrial firms and promotion of the development of new businesses and emerging sectors.

Despite facing pressure and challenges ahead, China's industrial profits will likely recover gradually in the coming months with a steady recovery in domestic demand, stimulus policies taking effect gradually and weakening base effects, Ye said.