China’s industrial sector has witnessed the steepest fall in profits at a record pace over a year, indicating the signs of weakening domestic demand and persistent deflation.
According to statistical data released by the National Bureau of Statistics, in November the profit fell 13.1 percent from a year earlier after a 5.5 percent decline in October. However, Bloomberg Economics had predicted a decline of 15 percent.
Xu Tianchen, senior economist at the Economist Intelligence Unit said the profit numbers align with broad-spectrum cooling in the fourth quarter’s economic activity.
While discussing cautiously optimistic economic outlook, Xu said, “Profitability will improve under ‘anti-involution’ as firms scale back investment over time, adding that companies could also earn more profits overseas, at the cost of their global peers.”
While talking about sectors, the profits in the automotive industry rose by 7.5 percent due to resilience and acceleration. High-tech manufacturing witnessed the rise in 10 percent profits on a year-on-year basis.
Factors responsible for profit slump
Weak domestic demand
Soft household consumption is considered the primary factor for slowing down the profit surge, thereby outshining gains made from the exports.
Factory-gate deflation
Persistent deflation at factory level continues to squeeze profit levels, making it hard for industrial firms to maintain profitability despite significant output.
Decline in fixed-asset investment
According to data, the significant decline in investment during the second half of 2025 is also responsible for slowing down economic activity.
Rhodium Group think tank suggests that China’s economy grew by 2.5 to 3 percent in 2025 driven by a collapse in fixed-asset investment.
Sector-specific decline
Coal mining and washing profits plunged by 47.3 percent from January to November, downplaying the overall industrial average for the first 11 months of the year.
Structural adjustments
The industry is in a transition phase, shifting from old to new growth drivers which cause momentary volatility. In the midst of adjustment, it is important to prioritize industrial profits.
