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China’s industrial business’s profits dropped after COVID

May 30, 2023: The Profits of China’s industrial firms declined in the foremost four months of 2023, official data showed, as companies struggled with margin pressures and soft demand amid a faltering economic recovery.

Profits fell 20.6% in January-April from a year earlier, compared with a 21.4% decline in the first three months, according to information from the National Bureau of Statistics (NBS).

In April alone, industrial firms posted an 18.2% drop in profit year-on-year, according to the NBS, which only occasionally gives monthly figures. Profits shrank 19.2% in March.

“Overall, today’s data shows that industrial enterprises, especially private and equity-owned enterprises, continue to be affected by a combination of unfavorable factors such as the base effect, short-term pressure on the economic recovery, and the downward trend of PPI (producer prices),” said Bruce Pang, chief economist at Jones Lang Lasalle.

Chinese companies need help with weak domestic and softening demand in the country’s major export markets. Producer deflation deepened in April, with the producer price index (PPI) falling at the fastest since May 2020.

Lenovo, the world’s largest PC maker, said this week that quarterly revenue and profit tanked in January-March, and it had cut 8% to 9% of its workforce to reduce costs as global demand for personal computers (PCs) continued to slump.

Producers of steel and other industrial metals are also hurting. Steel prices that reinforce bars used in construction hit the lowest level in three years this week; only a third of the country’s mills are operating at a profit, according to consultancy Mysteel.

“There is still some pressure felt in May due to the difference amid the purchase and sales prices, with steel prices falling in the month because of the slower-than-expected demand recovery,” Baosteel, a subsidiary of the world’s largest steelmaker-China Baowu Steel Group, said in an investor interactive platform on May 22.

Foreign firms saw their profits slide 16.2% in January-April from a year earlier, while private-sector firms recorded a 22.5% plunge, according to a breakdown of the data.

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China’s industrial business’s profits dropped after COVID