- Chinese manufacturers' profits fell last month, while carmakers reported a significant gain in the first quarter.
- Weak domestic demand is causing Chinese companies to sell products en masse overseas, worrying US officials.
- China became the world's largest auto exporter last year, outpacing Tesla in electric vehicle sales.
Big Chinese manufacturers' profits fell last month, but carmakers posted a significant gain in the first quarter — one of the sectors worrying US officials.
The National Bureau of Statistics reported on Saturday that large-scale manufacturers' profits dipped 3.5% in March, compared with a year earlier. For the first three months of the year, profits were up 4.3%, to 1.51 trillion yuan, or $208 billion.
The new data highlights how weak domestic demand is eating into Chinese manufacturers' profits, causing companies to sell products en masse overseas. US Treasury Secretary Janet Yellen and Secretary of State Antony Blinken visited China in the last month, where they warned about Chinese companies undercutting other manufacturers.
Blinken said at a Friday press conference that he talked with Chinese officials about overcapacity in key industries, including solar panels, electric vehicles, and batteries.
"China alone is producing more than 100% of global demand for these products, flooding markets, undermining competition, and putting at risk livelihoods and businesses around the world," Blinken said.
'A real train wreck coming'
One major area of concern for the US is protecting domestic car production. Even though Chinese car companies don't sell cars in many large markets, like the US, Chinese automakers' overall profit jumped 32% in the first quarter, year-on-year, per the NBS.
China needs to expand into new markets for many goods, because domestic appetite has risen much slower than manufacturing output. Last year, China and Japan were neck-and-neck for title of the world's largest auto exporter, and the Chinese electric vehicle maker BYD outsold Tesla.
So far, increased EV production hasn't led to a big uptick in inventory — the kind of overproduction hurting other industries, per a Bloomberg analysis earlier this month.
And cars weren't the only bright spot in the first quarter: Electronic industry profits were up 82.5%, year-on-year, per NBS data.
Michael Froman, the US trade representative during the Obama administration, told CNBC on Thursday that China's export-led growth comes just as international markets are closing to the country. China has publicly written off US warnings about overproduction as posturing ahead of the presidential election.
"There's a real train wreck coming here where this is the next generation of trade conflict," said Froman, who is now the president of the Council on Foreign Relations. "This is broader than election-year activity."
China is focused on boosting domestic demand and improving business confidence, NBS analyst Yu Weining wrote in a statement accompanying Saturday's data release. Overall domestic demand is depressed as the country faces a faltering GDP and a roiling property market.
