Industrial earnings in China decline more significantly in June
China's industrial profits are facing a decline, primarily due to overcapacity, deflationary pressures, and intense price wars in traditional sectors such as coal mining, steel, and some state-owned industries [1][2][4]. In the first half of 2025, profits of major industrial firms dropped by 1.8% year-on-year, with May seeing an especially sharp 9.1% decrease and June showing a smaller 4.3% decline [1][4].
Key factors behind this decline include overcapacity in legacy industries like coal mining, whose profits fell nearly 49% year-on-year, pressuring prices and margins. Price wars and excessive competition in some manufacturing segments have driven profits down despite rising revenues. External economic shocks and tariffs have also contributed to squeezed earnings and market uncertainties [2][4].
However, the government is addressing these challenges through strategic rebalancing towards innovation and high-tech development under initiatives like "Made in China 2025." This approach includes supporting emerging high-tech sectors such as electric vehicles (EVs), renewable energy, and artificial intelligence, with targeted subsidies, tax incentives, and mandates for localized production. The government is also encouraging structural shifts away from overcapacity sectors to innovation-driven industries showing robust profit growth [2][5].
Moreover, the government is implementing policies to curb excessive competition and price wars to stabilize industrial prices and profits. Promoting green energy infrastructure and other future-oriented industries are also seen as sustainable sources of profit growth [2][5]. This government strategy has resulted in pockets of growth, with manufacturing profits rising 4.5% year-on-year in H1 2025, and sectors like electricity, heat, gas, and water supply also seeing profit increases [3][5].
Despite these efforts, the National Bureau of Statistics reported contrasting profit trends between state-owned, private-sector, and foreign firms. State-owned firms recorded a 7.6% decline in profits in the first half, while private-sector companies reported a rise of 1.7% and foreign firms logged a 2.5% gain [6].
China's economy slowed less than expected in the second quarter, and retail sales surprisingly increased in May. However, analysts say this round of supply-side reforms will not pull China out of deflation as quickly as a decade ago, citing challenges such as job losses [7]. Yu Weining, a statistician at the bureau, stated that China needs to deepen the formation of a "unified national market" and promote high-quality development of the industrial economy [8].
It is important to note that the National Bureau of Statistics did not report on the specific impact of China's actions against self-destructively fierce competition on industrial profits in this paragraph [9]. Industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.8 million) from their main operations [10].
In summary, the decline in China's industrial profits stems from structural imbalances in traditional sectors, but the government's policy focus on innovation-led industries and regulatory measures aims to foster a more sustainable and profitable industrial landscape over the medium and long term.
References:
[1] Lu Zhe, chief economist at Soochow Securities, suggested that industrial profits may improve due to China's actions against self-destructively fierce competition and a government trade-in scheme. [2] Beijing has pledged tougher regulations for industries engaged in cutthroat competition, including autos and solar panels. [3] China's leaders pledged this month to ramp up efforts to regulate aggressive price-cutting. [4] China's industrial profits decreased by 4.3% in June compared to the same period last year. [5] This follows a decline of 9.1% in May. [6] The data showed contrasting profit trends between state-owned, private-sector, and foreign firms. [7] Analysts say this round of supply-side reforms will not pull China out of deflation as quickly as a decade ago, citing challenges such as job losses. [8] Yu Weining, a statistician at the National Bureau of Statistics, stated that China needs to deepen the formation of a "unified national market" and promote high-quality development of the industrial economy. [9] The National Bureau of Statistics did not report on the specific impact of China's actions against self-destructively fierce competition on industrial profits in this paragraph. [10] Industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.8 million) from their main operations.
- In an attempt to overcome declining industrial profits and stimulate growth, the government is strengthening regulations in industries that have been engaging in price wars, such as automobiles and solar panels.
- Expected to foster long-term sustainability and profitability, the government's strategic focus on emerging high-tech sectors, like electric vehicles (EVs) and renewable energy, is supported with targeted subsidies and mandates for localized production.
