China’s industrial profits continue to decline

Profits at China’s industrial firms declined for a second consecutive month in June, official data showed on July 27, as persistent deflation at the factory gate and weak domestic demand continue to pressure corporate margins.

According to the National Bureau of Statistics (NBS), industrial profits fell 4.3 per cent in June compared to the same period last year, following a sharper 9.1% drop in May. Cumulatively, profits in the first half of 2025 were down 1.8% year-on-year, widening from the 1.1% decline recorded in the January–May period, Reuters reveals. 

The figures underscore the challenges facing the world’s second-largest economy, even as it showed stronger-than-expected growth in the second quarter, demonstrating some resilience against US trade tariffs. However, a wave of price wars—especially in the auto and solar industries—has led to excessive competition and falling margins, prompting authorities to consider tighter regulations.

"To cope with the complex and evolving external environment, China must accelerate the development of a unified national market, bolster domestic circulation, and push for high-quality growth in the industrial economy," said Yu Weining, a statistician at the NBS.

Factory-gate prices, a key measure of profitability, fell at their fastest pace in nearly two years last month, reflecting deepening deflationary pressures driven by sluggish demand and industrial overcapacity.

Economists believe there may be a gradual turnaround. Lu Zhe, chief economist at Soochow Securities, said efforts to rein in destructive price competition—alongside a government trade-in initiative similar to a “cash for clunkers” scheme—could help restore balance in key sectors and stimulate consumer demand.

Nevertheless, state-owned automakers such as Guangzhou Automobile Group and JAC Group are bracing for what could be their worst second-quarter earnings on record, highlighting the strain faced by large industrial firms.

Earlier this month, Chinese policymakers pledged to intensify oversight of aggressive discounting practices, raising expectations of renewed industrial capacity cuts. Yet analysts caution that this round of supply-side reforms may not deliver the same quick rebound seen during previous restructuring drives, citing concerns about potential job losses and broader economic drag.

The data also revealed stark divergences across ownership types. Profits at state-owned enterprises dropped 7.6% in the first half, while private firms posted a 1.7% increase. Foreign-invested companies saw a 2.5% rise in profits.

The NBS figures cover industrial firms with annual revenues exceeding 20 million yuan (approximately $2.8 million) from their main operations.

By Sabina Mammadli