(Bloomberg) -- Profits at China’s industrial companies rose in April, as a government push for equipment upgrade lifted demand and exports returned to growth, giving a boost to the economy.

Industrial profits at large Chinese companies increased 4% from a year earlier in April, according to data published by the National Bureau of Statistics on Monday. The uptick reversed a drop in March that ended seven straight months of increases. 

A global cyclical boom in technology products like chips as well as a push by the Chinese government to get firms to replace their old equipment likely supported the April upturn. Strong overseas demand for manufactured goods also improved earnings of makers of things from clothing to furniture.

“The fostering of ‘new productive forces’ coupled with the equipment upgrade policy is gradually showing impact,” Yu Weining, a government statistician, said in an accompanying statement. The catchphrase refers to emerging industries including tech, which China is trying to promote as a new source of growth.

The government in March pledged funds to encourage consumers and businesses to replace old goods and equipment. For industry, the program comes in the form of a mix of subsidies, government investment and new environmental standards for machinery.

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Equipment manufacturing made the biggest contribution to profit growth in the first four months of the year, according to Yu. Earnings of computer, communication and other electric equipment manufacturers surged 76% in the first four months of the year from the same period a year ago, while the profits of general equipment manufacturers rose 6% during the period.

Profits of foreign firms led the rebound this year so far, rising 17% in the first four months after heavy losses in 2023, while earnings of state-owned enterprises fell 2.8%. 

But the recovery of industrial firms needs to be further solidified as “domestic demand remains insufficient and external environment is still complex and grim,” Yu said.

What Bloomberg Economics Says...

“The rise in China’s industrial profits in April after March’s decline is another sign manufacturing is getting back on a firmer footing. The trouble is this likely reflects support from exports and government-backed investment, not a broader recovery in private-sector demand (a picture conveyed by April’s activity data). A lack of balance raises doubts about the sustainability of the earnings recovery — a prerequisite for companies to expand investment and hiring.”

— Eric Zhu, economist

Read the full report here.

In April, growth in consumer spending unexpectedly cooled to the slowest pace since 2022 while key metrics for the property sector deteriorated across the board. Factory-gate prices remained stuck in deflation, as they’ve been since late 2022, with the producer price index sliding 2.5% in April from a year earlier.

Chinese policymakers are relying on the country’s industrial producers to offset weak domestic demand and help the economy meet this year’s growth target of around 5%. 

But China’s strong industrial output has become a source of tension with countries including the US and Europe, which have criticized Beijing for flooding the global market with cheap goods, particularly in new energy sectors. Trade frictions look set to escalate as China has vowed to take resolute measures against new tariffs from the Biden administration and hinted at 25% car tariffs that would affect European and US carmakers.

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All of this has left authorities under pressure to prop up the domestic market with more fiscal and monetary stimulus. 

Economists expect the central bank to cut interest rates this year. Earlier this month, the government also announced a broad rescue package for the property sector, though analysts doubt the measures will be enough to end a years-long real estate slump.

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(Updates with more details.)

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