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

BEIJING (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 WooEditing by Shri Navaratnam)