China’s industrial sector is facing significant challenges as profits fell at their fastest rate in over a year, highlighting the ongoing struggles of the economy. According to data released by the National Bureau of Statistics, profits for industrial companies with annual revenues exceeding Rmb20 million ($2.8 million) plummeted by 13.1% in November compared to the same month last year. This decline marked a sharp drop from the previous month’s decrease of 5.5%, indicating increasing economic pressure.
The recent downturn has brought the profit growth for the year-to-date down to a meager 0.1%, a notable decline from the 1.9% growth recorded in the January-to-October period. This situation underscores the difficulty China’s economy has encountered in finding long-term growth drivers, particularly following the collapse of the debt-fueled property sector, now in its fifth year of crisis.
Relying on exports of low-cost goods has provided a temporary boost to headline growth; however, the second-largest economy in the world is currently facing deflationary pressures, weak domestic demand, and declining investment levels. The producer price index has remained in negative territory for three consecutive years, reflecting underlying economic weaknesses.
Yu Weining, the chief statistician for the NBS, highlighted that the economy is under considerable “structural adjustment pressures” as it transitions to new growth drivers. He also pointed out that the current international environment is fraught with instability and uncertainty, complicating recovery efforts further.
Despite a recent truce in the US-China trade war and an increase in high-tech manufacturing exports, the central government in Beijing has been hesitant to implement widespread stimulus measures or significant social security reforms, which economists believe are necessary to enhance consumer sentiment and stimulate economic activity. Authorities have focused on tackling “neijuan,” or excessive industrial competition, which they argue has contributed to overproduction and resultant price declines.
In an article in Qiushi, a magazine associated with the Communist Party, President Xi Jinping called for a more urgent response to the challenge of insufficient domestic demand, identifying it as critical to both economic stability and security. He reiterated the need for greater discipline in investments, following previous criticisms of industrial over-investment that has sparked harmful price wars.
Amid these downturns, some sectors have shown resilience. Notably, high-tech manufacturing and the automotive industry experienced year-on-year growths of 10% and 7.5%, respectively. However, other metrics paint a troubling picture: fixed asset investment fell by 2.6% from January to November compared to last year, and retail sales—an indicator of consumer demand—grew by just 1.3% in November, the slowest rate since December 2022.
These developments reflect the complex landscape that policymakers face as they balance immediate economic needs with long-term strategic goals in a transitioning economy.
