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PROFITS at China’s industrial companies increased in the first two months of the year, extending a gaining streak since August and adding to positive signs in the economy.

Industrial profits rose 10.2 per cent from a year earlier in January to February, according to data published by the National Bureau of Statistics (NBS) on Wednesday (Mar 27). That was boosted by a low base of comparison a year earlier and came after double-digit growth was recorded in four of the last five months in 2023. For the full year of 2023, profits fell 2.3 per cent due to slumps in the first seven months.

The increase in industrial profits provided more evidence that the world’s second-largest economy is on a firmer footing this year on the back of rebounding foreign demand and policy stimulus by Beijing. Still, deflationary pressures linger as a property slump and subdued confidence weigh on domestic demand, with falling factory-gate prices squeezing industrial firms’ profit margins.

“Revenue growth at industrial enterprises picked up markedly as market demand continued to recover and industrial output expanded rapidly,” Yu Weining, an NBS analyst, said in a statement accompanying the data release. “That created favourable conditions for their profits to increase.”

Some 29 out of China’s 41 main industries saw profits rise in the first two months, Yu said. Manufacturing and utilities led the gains while earnings at miners dropped. Consumption goods makers logged a 12.9 per cent jump in profits after earnings fell 1.1 per cent last year.

Factory output and fixed-asset investment grew faster than expected in the first two months. But economists say more policy support is needed to increase household income to spur consumption to make the recovery more balanced as authorities seek to achieve an annual growth target of around 5 per cent, which is still widely deemed ambitious.

Beijing has pledged to provide government funds to encourage consumers and businesses to replace old goods including cars and home appliances as well as equipment, which should be a boon for industrial firms. However, it is yet to unveil details such as the value of the fiscal aid.

Central bank officials have signalled more liquidity injections are possible. Economists expect the People’s Bank of China to deliver more cuts totalling 50 basis points this year to the amount of money banks have to keep in reserve. BLOOMBERG