China’s industrial profits fall in January-February as economic risks mount

* Jan-Feb industrial profits down 0.3% vs +11% in Dec

* Some firms face production, operation difficulties,
official
says

* US tariffs add to domestic demand and deflationary woes

* Uneven start for economy this year keeps pressure for
policy
support

BEIJING, March 27 (Reuters) – China’s industrial profits
slipped in the first two months of 2025, signalling a
challenging period ahead for businesses as they navigate
persistent deflationary forces and an escalating trade war with
the United States.

The economy got off to an uneven start this year, as retail
sales growth accelerated while consumer and producer prices
contracted and exports remained sluggish, maintaining pressure
on policymakers to ramp up stimulus.

Industrial profits fell 0.3% in the January-February period
from the same period last year, according to data released by
the National Bureau of Statistics (NBS). This compared with an
11% increase in earnings in December.

China combines the profits data for January and February to
smooth out the impact of the week-long Lunar New Year holiday,
the timing for which changes each year.

Highlighting a tortuous post-COVID recovery, industrial
profits slid 3.3% for the whole of 2024, the third straight year
of contraction.

Worryingly, the pressure on business shows no signs of
letting up this year, and the U.S. tariffs appear to have driven
retailers in the world’s biggest economy to seek price cuts from
Chinese suppliers.

“The external environment has become more complex and severe
with an increase in unstable and uncertain factors, and some
industrial enterprises are still facing a lot of difficulties in
their production and operation,” said NBS statistician Yu
Weining.

The comments underscore the mounting headwinds at home and
abroad.

TRUMP FACTOR

U.S. President Donald Trump’s tariff blitz against trading
partners, including China, has rattled financial markets and
raised fears of a sharp global economic downturn.

“The escalation of tariffs this year could exacerbate what
is already heavy cost competition amid overcapacity concerns,”
said Lynn Song, ING’s chief economist for Greater China.

“As such, much of the onus remains on policy support to
boost domestic demand this year to help offset this drag.”

While a few firms such as local electric vehicle champion
BYD posted record profits last year, many
businesses were struggling to stay afloat.

The country’s automobile sector saw an 8% slide in profits
in 2024, industry data showed.

Household loans including mortgages contracted in February
while corporate loans fell sharply as subdued private demand
remained subdued amid a prolonged housing downturn and lingering
income and job woes.

In an effort to shore up the economy, China pledged more
fiscal stimulus and unveiled a wide-ranging “special action
plan” to spur consumption as Beijing targets growth of around 5%
this year, similar to 2024.

Global banks including HSBC and Morgan Stanley have raised
their forecasts for China’s economic growth on the back of the
stimulus measures, while acknowledging that headwinds including
tariff risks remain on the horizon.

Profits at state-owned firms rose 2.1% in the first two
months, foreign firms recorded a 4.9% gain and private-sector
companies posted a 9% fall, according to a breakdown of the NBS
data.

Industrial profit numbers cover firms with annual revenue of
at least 20 million yuan ($2.75 million) from their main
operations.
($1 = 7.2605 Chinese yuan renminbi)

(Reporting by Qiaoyi Li, Shi Bu and Ryan Woo
Editing by Shri Navaratnam)