China’s Industrial Profits Fall by 21.4%: Recovery Remains Lopsided with Production Lagging Behind Consumption

China’s industrial firms’ profits fell 21.4% year-on-year to 1.52 trillion yuan ($220 billion) in the first three months from 1.93 trillion yuan a year ago, according to official data.[0] This was a much bigger decline than expected and follows a 22.9% decline in the first two months of 2023.[1] According to the data, China's recovery appears to be imbalanced, as the production aspect of the economy is trailing behind the rise in consumption. On Sunday, the National Bureau of Statistics reported that the manufacturing purchasing managers' index, which is the official index, decreased from 51.9 in March to 49.2.[2] The gauge dropped below the level of 50 for the first time since December, signalling contraction from the previous month.[3] The recovery of the services sector consolidated, with the sub-index for business activities reaching 55.1, increasing by 15.1 percentage points from the same period last year.[4] This month, the construction sector sub-index recorded a score of 63.9, indicating the confidence of companies in the industry towards future market prospects.[5] China's composite PMI stood at 54.4 in April, signalling that overall production from manufacturing and non-manufacturing enterprises continues to expand.[6]

Despite the contraction in industrial profits, China's economy grew by a bigger-than-expected 4.5% in the first three months of the year, driven largely by a rebound in consumption.[7] However, analysts are doubtful over whether this momentum will be maintained, especially as the manufacturing sector struggles.[7] Ye Yindan, a researcher at the Bank of China Research Institute, estimated that China's economy will likely expand around 7.6% in the second quarter, with full-year GDP growth of around 6% in 2023, given China's robust recovery in consumption, the steady recovery of investment, and the property sector gradually stabilising.[6]

In April, China's economy demonstrated growth according to high frequency indicators, although the recovery's potency is being questioned due to a volatile global climate and notable unemployment rates.[8] In April, Bloomberg's composite index of eight leading indicators increased to a level of 5, primarily attributed to a surge in car and housing sales compared to the previous year.[9] The strength in consumption is overstated when comparing to last year, as Shanghai was under lockdown resulting in a significant decline in economic activity.[9]

The data indicate that China's recovery remains patchy, with the production side of the economy lagging behind the rebound in consumption. This underscores Chinese leaders’ cautious growth outlook and the need for more policy stimulus.[10] Beijing has already rolled out a raft of support measures, including tax relief and easier access to bank loans, to cushion the impact of the pandemic on businesses. However, the impact of these measures has been limited due to high debt levels in the corporate sector and lingering concerns about the quality of bank loans.

The decline in industrial profits is a significant concern as it could have a knock-on effect on employment and investment in the sector. Sun Xiao, a statistician at the NBS, said while industrial profits declined sharply, the declining upstream prices could help improve the industrial profits in downstream industries.[11] However, the decline in industrial profits could dampen business confidence and investment in the sector, which could have a negative impact on China's overall economic growth.

0. “China’s Q1 industrial profits fall 21.4%” La Prensa Latina, 27 Apr. 2023,

1. “US friend-shoring hurts China's industrial profits” Asia Times, 27 Apr. 2023,

2. “China's Consumers Lead Recovery in April – WSJ” The Wall Street Journal, 30 Apr. 2023,

3. “China's Factory Sector Contracts as Recovery Concerns Linger” Bloomberg, 30 Apr. 2023,

4. “China's non-manufacturing PMI expands for four consecutive months” Xinhua, 30 Apr. 2023,

5. “China's factory activities slow, expectations unabated_英语频道_央视网(” CCTV, 1 May. 2023,

6. “Factory activity contracts in April on weak demand” China Daily, 30 Apr. 2023,

7. “Chinese Q1 industrial profits sink more than expected By”, 27 Apr. 2023,

8. “China’s Consumer Recovery Under Scrutiny as Economy Rebounds” Yahoo Life, 26 Apr. 2023,

9. “China’s Consumer Recovery Under Scrutiny as Economy Rebounds” Forex Factory, 26 Apr. 2023,

10. “China's mixed economic data fuels concerns about recovery” The Japan Times, 1 May. 2023,

11. “China's Industrial Enterprises Log Revenue Gains in March, Snapping Four-Month Decline” Yicai Global, 27 Apr. 2023,

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