The mainland's industrial sector saw profits fall in the first two months of the year, marking its worst performance since the world's second-biggest economy was still feeling the impact of the global financial crisis.
Profits declined 5.2 per cent in January and February, the first slide since the third quarter of 2009 when the economy began to recover from the global financial crisis.
Industrial enterprises of significant scale - defined as those with annual turnover of at least 20 million yuan - reported a total profit of 606 billion yuan (HK$742.6 billion), down 5.2 per cent from the same two months of last year, the National Bureau of Statistics said.
January and February economic statistics are usually analysed in aggregate, to eliminate distortion caused by the fact that the Lunar New Year - when economic activities slow down dramatically - falls on a different month in different years.
The decline in profit in the two months was despite a 13.4 per cent rise in sales to 12.08 trillion yuan, indicating a squeeze in profit margin. Total accounts receivables grew 18.1 per cent year on year, faster than that of sales, suggesting it took longer on average for manufacturers to retrieve payment from customers.
The poor industrial profit figure, a sharp contrast to a 25.4 per cent growth last year from 2010, together with recently-released weak export, industrial output and manufacturing data, pointed to slower-than-expected economic growth and the need for Beijing to loosen monetary policy and increase government spending.
'The main culprit for this has been the sharp deceleration in export growth ... meanwhile, domestic demand may yet weaken, as the impact of Beijing's sustained effort to cool down property prices has yet to fully unfold,' wrote HSBC chief economist Qu Hongbin in a research note.