BEIJING: China’s industrial profits fell in March and slowed gains for the quarter compared with the first two months, official data shows, raising doubts about the strength of a recovery for the world’s second-biggest economy.

Cumulative profits of China’s industrial firms rose 4.3% to 1.5 trillion yuan in the first quarter from a year earlier, National Bureau of Statistics (NBS) data showed last Saturday, slower than a 10.2% rise in the first two months.

Profits fell 3.5% year-on-year in March. NBS did not break down monthly numbers for January-February, but said during the release in March that monthly numbers had extended gains since August 2023.

The reading complemented a slew of economic indicators for March such as retail sales and industrial output that pointed to frail domestic demand despite solid first-quarter gross domestic product (GDP) growth.

Signs of the economy gaining momentum in the opening months were shown to have gradually given way to concerns over lacklustre demand at home.

If profit growth continues to slow, the repair of the asset and liability structure of manufacturing firms and their willingness to expand investment may also be affected, said Bruce Pang, chief economist and head of research in Greater China at real estate services company Jones Lang LaSalle Inc (JLL).

High-tech manufacturing led growth with the 29.1% rise in profits in the first quarter, NBS said in a statement, adding the recovery of firms’ profits was uneven.

Profits in the automobile manufacturing industry grew 32% on year in January-March.

China’s largest auto show opened in Beijing lastThursday with the biggest names showing off their latest electric vehicles, underlining how the world’s largest auto market is already in an all-electric state of mind, and is not looking back.

Earlier in April, 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.

Fitch has cut its outlook on China’s sovereign credit rating to “negative”, citing risks to public finances as the economy faces increasing uncertainty in its shift to new growth models.

Pang of JLL said business conditions of manufacturing enterprises are expected to improve as they will benefit from policies such as large-scale equipment renewal.

“(But) the focus of the future policy should be on the demand side rather than the supply side,” he said.

 - Reuters