SUMMARY

• Industrial firms in China face a challenging Q1 2023, with profits plummeting 20.6% between January and April.
• Chinese companies grapple with declining demand both domestically and globally, exacerbated by deepening producer deflation.
• Amid economic turbulence, efforts are being redoubled to revive demand, enhance production, and boost business confidence.

China's industrial corporations are navigating rough waters as they grapple with an underwhelming economic rebound in 2023's initial months, fresh data revealed this Saturday. The dual pressures of shrinking profit margins and tepid demand seem to be an ongoing battle, reflecting a gloomier economic outlook.

Profits plummeted by 20.6% between January and April, a marginal improvement over the 21.4% decline witnessed in the first quarter, as per the figures released by the National Bureau of Statistics (NBS). In the month of April, alone, an 18.2% year-on-year dip in profits was recorded, following a 19.2% contraction in March. Bruce Pang, chief economist at Jones Lang Lasalle, attributes this trend to a convergence of factors, including the base effect, a slowing economic recovery, and the downward trajectory of the Producer Price Index (PPI).

The balance of demand seems to have faltered for Chinese companies, both domestically and across their significant export markets. This instability is underscored by the deepening producer deflation in April, the steepest since May 2020. Global demand for personal computers, for instance, continued to flag, affecting Lenovo, the world’s largest PC maker. This led to a significant decline in its quarterly revenue and profit, triggering a workforce cut of 8% to 9% to curtail expenses.

The strain is also perceptible in China's industrial metals sector, particularly steel production. Construction steel bar prices hit a three-year low this week, resulting in only a third of the country's steel mills operating profitably, as reported by consultancy firm Mysteel. Baosteel, a subsidiary of the world's largest steelmaker—China Baowu Steel Group—also reported pressure due to a slower-than-expected recovery in demand.

Given the circumstances, the next phase will see China redouble efforts to revive and broaden demand, enhance production, marketing levels, and bolster business confidence, as per NBS statistician Sun Xiao. Meanwhile, foreign firms and private-sector entities saw their profits decline by 16.2% and 22.5% respectively in the January-April period. Profits for 27 of the 41 major industrial sectors were subdued during the same period. The greatest slump at 99.4% was reported by the ferrous metal smelting and rolling processing industry.

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