China’s industrial profits showed positive growth in April, offering hope that recent stimulus efforts are helping to stabilize the economy amid rising trade tensions with the United States. Official data released on Tuesday by the National Bureau of Statistics (NBS) indicated that industrial profits rose 1.4% year-on-year for the January-April period, up from 0.8% growth in the first quarter. The improvement in April alone saw profits climb 3.0%, compared to 2.6% in March.
Stimulus Efforts and Industrial Growth
Policymakers are encouraged by the results, seeing evidence that stimulus measures are beginning to take effect. Since September, China has been gradually implementing various stimulus efforts aimed at boosting domestic demand and investor confidence. These measures include interest rate cuts and significant liquidity injections, the most recent of which came in early May. Dan Wang, China director at Eurasia Group, noted that commodities related to new energy, new materials, and high-end manufacturing are performing well, indicating that the government’s industrial policy priorities are paying off.
Challenges Persist Despite Positive Profit Growth
However, the data also highlighted persistent challenges. Profits from state-owned enterprises fell by 4.4% over the first four months of the year, while private sector companies and foreign firms saw growth of 4.3% and 2.5%, respectively. The NBS statistician, Yu Weining, emphasized that the foundation for stable profit growth needs strengthening. Global uncertainties, insufficient demand, and falling prices continue to weigh heavily on China’s economic recovery, and the country is still facing weak domestic demand and deflationary pressures.
Impact of U.S.-China Trade Tensions
The recent trade tensions between the U.S. and China have added to the complexity of China’s economic situation. As the two nations increased tariffs on each other’s goods, separate data indicated a mixed economic picture. While exports exceeded expectations, factory output, retail sales, and bank lending showed signs of slowing. Analysts remain cautious, especially after the U.S. and China reached a temporary truce in early May, with both sides unwinding most tariffs. However, some analysts warn that this truce may not hold and could still derail China’s economic recovery.
Potential Job Losses and Economic Risks
One of the major risks to China’s economy is the potential loss of jobs if exports to the U.S. drop significantly. Nomura analysts have warned that a 50% drop in U.S. exports could lead to the loss of 16 million jobs in China, further straining the economy. Lynn Song, chief economist for Greater China at ING, found it encouraging that manufacturing enterprises saw an 8.6% profit growth year-on-year, despite the challenging environment. However, some sectors, such as the automotive industry, face significant challenges due to severe price competition.
