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Home » Overcapacity hinders economic recovery, reducing profits at Chinese factories
China

Overcapacity hinders economic recovery, reducing profits at Chinese factories

i2wtcBy i2wtcApril 28, 2024No Comments3 Mins Read
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China’s factory profits have retreated from a two-year high, official data shows, as industrial overcapacity complicates Beijing’s efforts to revive momentum in the world’s second-largest economy. This highlights concerns that

Industrial profits of major Chinese companies fell 3.5% in March from the same month a year earlier, the National Bureau of Statistics announced on Saturday. For the first quarter as a whole, industrial profits increased by 4.3% compared to the same period in 2023.

The March figures came as China’s industrial profits rose 10% in the January-February period to a 25-month high, raising hopes that the industrial sector’s slump had bottomed out. It was a blow.

Analysts at Goldman Sachs said that both industry profits and revenues fell “significantly” in March, highlighting falling profit margins as a problem for Chinese industry.

The latest signs of stress in China’s economy come as U.S. and European officials grow wary of plans by Chinese policymakers to use China’s manufacturing advantages, including exports, to boost growth. It is occurring in

During a three-day visit to China last week, US Secretary of State Antony Blinken said there was already a “clear mismatch” between Chinese production and global demand, and said Xi Jinping’s response to heavy state subsidies for industry warned the chief.

Blinken said below-market prices for Chinese goods “could have a devastating impact” on workers, communities and businesses overseas.

China’s Foreign Ministry said Friday that officials had “refuted” U.S. claims about overcapacity in a meeting with Blinken, branding criticism of China’s industrial policy as U.S. protectionism, state media reported. It was dismissed as another example of China’s restraint on development.

China has set a growth target of around 5% for 2024, the same as last year (the lowest in decades), but the figure remains ambitious amid prevailing deflationary pressures and could require more stimulus support. Analysts are warning.

Capital Economics analysts Simon McAdam and Arian Curtis wrote in a research note that “China’s favorable supply chain conditions, ample inventories, and industrial overcapacity could help reduce inflation in core goods. It will be helpful.”

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Analysts at Australian bank Westpac say the steel industry’s exports have become a key “release valve” for overcapacity, despite a growing global backlash against the dumping of excess product overseas. He pointed out that China’s steel exports are approaching record levels since 2015.

NBS struck a more positive tone on Saturday, reporting that profits in the electronics industry rose 82.5% year-on-year in the first quarter, while profits in auto manufacturing rose 32% in the same period.

State media also expressed confidence in the Chinese government’s plan to further boost consumer spending by subsidizing the trade-in of old cars and home appliances.



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