China's Industrial Profits Surge 15.8% in March Despite Oil Shock
China's industrial companies posted strong profit growth of 15.8% in March, buoyed by booming exports and artificial intelligence investment, though economists warn the Middle East conflict and higher energy prices pose growing headwinds for the second quarter.
Robust Profitability Amid Trade Boom
The improved profitability for manufacturers was in part underpinned by robust exports. In the first quarter, China's exports grew 14.7% from a year earlier in U.S. dollars, the fastest pace since early 2022. This growth reflects strength in technology and manufacturing sectors benefiting from AI-driven demand.
Energy Resilience and Structural Advantages
China's energy mix, heavily anchored in coal and renewables, has provided a structural buffer against oil price volatility. In a survey of 32 sectors, around 70% of companies indicated "smaller cost shocks and fewer production disruptions" than their global peers. "China is relatively better positioned and may capture pockets of export market-share gains under a sizeable but not extreme energy shock."
Second Quarter Risks
The Middle East conflict will nonetheless weigh on the economy in the second quarter, as higher energy prices and weakening external demand pose a growing headwind for exporters. However, China's producer price growth turned positive in March, driven by higher oil prices, marking the first expansion in more than three years. Morgan Stanley expects the modest inflationary effect to push China's producer price index 1.2% higher this year.