China's April industrial profits grow at fastest in more than two years

China's industrial profits in April grew at the fastest pace since November 2023, despite financial pressures stemming from softening domestic demand and rising component costs exacerbated by the Middle East crisis.

The latest data adds to signs of an uneven recovery, with the economy largely losing momentum at the start of the second quarter. While exports have remained a rare bright spot, most other indicators have undershot expectations, leaving firms increasingly reliant on overseas markets for growth.

The shift comes as companies navigate persistent domestic headwinds and heightened global uncertainty, with US President Donald Trump's visit to China earlier this month delivering only modest commercial and trade commitments and an agreement to build a "constructive" relationship.

Profits at China's industrial firms rose 24.7 percent last month from a year earlier, sharply up from a 15.8 percent jump in March, data from the National Bureau of Statistics showed on Wednesday.

For the January-April period, industrial profits climbed 18.2 percent, versus a 15.5 percent increase recorded in the first quarter.

"Profit divergence is pronounced," said Tianchen Xu, senior economist at the Economist Intelligence Unit.

"Growth is mainly driven by upstream price increases and AI, while downstream sectors still face significant profit pressure due to rising upstream costs and intensified 'involution'."

The term refers to cutthroat competition in industries such as autos and solar panels, viewed as a sign of economic malaise.

Exports gained steam across many sectors last month, fuelled by a global AI investment surge while buyers stepped up purchases on concerns about further cost increases linked to the US-Israeli war with Iran.

As AI and other emerging industries significantly boost demand for non-ferrous metals such as aluminium, copper, gold, and lithium, profits in the sector jumped 117.8 percent in the first four months, the official data shows.

Still, solid export performance has not been enough to offset persistent weakness at home, a trend particularly evident in the auto sector.

China's top electric vehicle maker BYD's first-quarter profit fell 55.4 percent, its steepest drop since 2020 despite record overseas sales as a share of total vehicle sales.

Leapmotor, often seen as an emerging domestic rival to BYD, posted its strongest first quarter in revenue terms, driven by rising sales and a notable surge in exports, but its net loss widened compared with the year before.

"The external environment is complex and volatile, while the mismatch between strong domestic supply and weak demand remains pronounced," said NBS statistician Yu Weining. "Some enterprises are still facing operational difficulties."

Industrial profit figures cover firms with annual revenue of at least 20 million yuan (HK$23.09 million) from their main operations.

Reuters

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