00:00China's manufacturing sector is gaining momentum with industrial profits rising 15.8% in March.
00:07That's the fastest growth pace since September.
00:10Let's take a closer look at the first quarter highlights.
00:14Now, from January to March, industrial enterprises' total profits were nearly $236 billion, up 15.5% year on year.
00:25Private firms led the growth with profits of nearly $60 billion, up 25.4% a year ago.
00:34Profits in computers, telecommunications devices and other electronic manufacturing surged 120% year on year.
00:42The non-ferrous metal sector, including copper and aluminium, also saw profits jump 120%.
00:50Well, Rory Green is Chief China Economist for TS Lombard, Independent Investment Research.
00:55Great to have you on the show again.
00:58Look, we've seen a strong jump there in industrial profits.
01:01What's driving that right now?
01:04Yeah, it's a huge jump.
01:06Part of the recovery in industrial profits comes alongside a gradual stabilisation within the China economy.
01:17And that's been driven by very resilient exports, which have been great again for Q1,
01:23and also by a pickup in investment, which that has been probably the main delta in this profit move,
01:30is the resurgent in property, even manufacturing and infrastructure investment.
01:37On top of that, we can't ignore the oil picture, of course, Juliet,
01:40and there are some outsized gains there that you cited from the commodity complex as well.
01:46OK, so it's not just concentrated in a few sectors.
01:49It seems broader base.
01:50But what does the growing role of AI and higher-end manufacturing mean for China's industrial model overall?
02:00It's, I think, the start of what could be something of a revolution in manufacturing
02:06without being going into hyperbole here, Juliet.
02:11The scale of China's manufacturing industry, its competitiveness now both at relatively low-end manufacturing
02:20and at the advanced end, and its cost structure are, I think, unique in history.
02:27We have an emerging market economy that is able to produce technology
02:31that is the equivalent of developed markets in the U.S. and Europe.
02:35Combine that with the changes in AI we are seeing, which are not just in China,
02:41but I think China is probably one of the country's better place to combine those with manufacturing,
02:46and the potential economic implications and geo-economic ones even are enormous.
02:54Rory, how much pressure could rising energy costs put on the momentum that we're seeing from here on?
03:02Yeah, that is certainly a concern.
03:06I think the big concern here is external.
03:11Chinese domestic firms are actually relatively well insulated,
03:15certainly compared to their global peers from higher energy costs.
03:19China has a huge amount of reserves, access to Russian hydrocarbons at a discount,
03:26and then all these alternative sources of energy, coal and nuclear renewables.
03:31It's really the impact we're looking at.
03:35The most concern for the PRC is a drop-off in export,
03:39that it would be higher energy costs hitting the global economy
03:42and therefore damaging one of the key locomotives of China's growth.
03:46So actually, the domestic complex is pretty safe.
03:49It's that follow-through to external demand, which could be the higher risk here for China.
03:55So in terms of China's industrial outlook, is that what you're watching most closely?
03:59Exports?
04:00Yeah, the two things I'm watching most closely is the export side and government investment.
04:05It's been a big pick-up in fiscal spending, and that's really helping stabilise the domestic economy.
04:11So we're looking for that to continue, and the exports as well as the two key hinge points for 2026.
04:18Rory Green, TS Lombard, thank you very much indeed.
04:22Thank you very much.
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