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China's big factories had a terrible March, even as automakers roar to new highs

Meghan Morris   

China's big factories had a terrible March, even as automakers roar to new highs
  • Chinese manufacturers' profits fell last month, but carmakers reported significant gains in the first quarter.
  • Weak domestic demand is causing Chinese companies to sell products en masse overseas.

Big Chinese manufacturers' profits fell last month, but carmakers posted a significant gain in the first quarter — one of the sectors worrying US officials.

The National Bureau of Statistics reported on Saturday that large-scale manufacturers' profits dipped 3.5% in March compared with a year earlier. For the first three months of the year, profits were up 4.3% to 1.51 trillion yuan, or about $208 billion.

The new data highlights how weak domestic demand is eating into Chinese manufacturers' profits, causing companies to sell products en masse overseas. Janet Yellen, the US treasury secretary, and Antony Blinken, the secretary of state, visited China in the past month, where they warned of Chinese companies undercutting other manufacturers.

Blinken said at a Friday press conference that he talked with Chinese officials about overcapacity in key industries, including solar panels, electric vehicles, and batteries.

"China alone is producing more than 100% of global demand for these products, flooding markets, undermining competition, and putting at risk livelihoods and businesses around the world," Blinken said.

'A real train wreck coming'

One major area of concern for the US is protecting domestic car production. Even though Chinese car companies don't sell cars in many large markets, such as the US, Chinese automakers' overall profit jumped 32% in the first quarter, year on year, according to the NBS.

China needs to expand into new markets for many goods because domestic appetite has risen much slower than manufacturing output. Last year, China and Japan were neck and neck for the title of the world's largest auto exporter, and the Chinese EV maker BYD outsold Tesla.

Bloomberg found earlier this month that so far, increased EV production hadn't led to a big uptick in inventory — the kind of overproduction hurting other industries.

And cars weren't the only bright spot in the first quarter: Electronic industry profits were up 82.5% year on year, according to data from the NBS.

Michael Froman, the US trade representative during the Obama administration, told CNBC on Thursday that China's export-led growth had come just as international markets were closing to the country. China has publicly written off US warnings about overproduction as posturing ahead of the presidential election.

"There's a real train wreck coming here where this is the next generation of trade conflict," said Froman, who's now the president of the Council on Foreign Relations. "This is broader than election-year activity."

The NBS analyst Yu Weining wrote in a statement accompanying Saturday's data release that China was focused on boosting domestic demand and improving business confidence. Overall, domestic demand is depressed as the country faces a faltering GDP and a roiling property market.



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