Chinese industrial companies' profits declined at the start of the year but showed some signs of improvement, suggesting that government stimulus is having some effect as Beijing doubles down on its high-end manufacturing drive.
Industrial profits fell 0.3% from a year earlier during the first two months of the year, compared with the annual 3.3% drop seen in 2024, the National Bureau of Statistics said Thursday. China combines data for the two months to iron out distortions caused by the Lunar New Year holiday.
The softer contraction is in part thanks to the consumer trade-in and equipment-upgrade programs that Beijing launched last year, said Yu Weining, a statistician with the bureau. Still, Yu cautioned that a lot of businesses face many difficulties amid rising external volatility.
Since last fall, China has introduced a flurry of measures to boost growth, slashing interest rates, injecting liquidity into markets, easing property restrictions and ramping up government borrowing.
While recent data indicates that Beijing's efforts have helped stabilize the economy somewhat, uncertainty around U.S. tariffs continues to dominate the outlook.
Facing a protracted property downturn while absorbing tariff pains, Chinese officials are exploring ways to commercialize technological developments in a way that mirrors the success they've had in electric vehicles, hoping to find new engines of industrial growth.
One sector state planners have deemed promising is the so-called "low-altitude economy", referring to both manned and unmanned aviation services operating at lower altitudes to facilitate passenger transport and cargo deliveries.
Since last year, one city after another has rushed to map out plans to develop new types of personal transportation including "flying cars" that analysts say are still years away from reality.
"Much closer to real-world use is an emerging category of aircraft, known as electric vertical take-off and landing, most of which look like something between a large drone and a small helicopter," said Tilly Zhang, analyst at Gavekal Dragonomics, referring to vehicles that offer point-to-point, on-demand travel.
China's prowess in battery technology and supply chains could provide a strong technical foundation for such aircraft, Zhang said in a recent note.
Local officials are also betting on civilian drones they hope can speed up last-mile delivery.
Dozens of provinces and cities have established government-sponsored funds for the sector, with public and private investors making major investments in startups like Volant and AutoFlight.
It remains unclear if the low-altitude economy can be a meaningful contributor to economic growth. Analysts caution that there is a long way to go, in part due to public safety concerns.
Another avenue Chinese officials are championing to boost productivity in the vast industrial sector is artificial intelligence.
Goldman Sachs economists estimate that AI will start raising potential growth in China by 2026, providing a 0.2-0.3 percentage-point uplift to annual gross domestic product growth by 2030. They expect AI-related spending to rise sharply in the next few years, boosting economic output by almost 1% by the end of the decade.
State-backed adoption of AI and humanoid robots, another field favored by Beijing, could revolutionize factory floors, analysts say. But while the combo can help China build up its industrial might, it could also pressure an already-strained labor market packed with low-skilled workers.
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(END) Dow Jones Newswires
03-27-25 0050ET
