China's industrial profits fell further in June 2025, dropping 4.3% year-on-year, following a larger decline of 9.1% in May. For the first half of the year, industrial profits were down 1.8%, worsening from a 1.1% decline in the January to May period, according to data from China's National Bureau of Statistics.
This continued drop in profits reflects entrenched producer deflation, which has squeezed business margins amid weak domestic demand and ongoing uncertainties in global trade. Factory-gate deflation in June deepened to its worst level in nearly two years, exacerbated by overcapacity issues.
State-owned enterprises experienced a sharper decline, with profits falling 7.6% in the first half of 2025. In contrast, private-sector companies saw a moderate profit increase of 1.7%, and foreign firms recorded a 2.5% gain over the same period.
Particularly hard hit were state-owned automakers such as Guangzhou Automobile Group and JAC Group, expected to post their largest-ever second-quarter losses. The Chinese government has pledged to regulate aggressive price-cutting practices, especially in sectors like autos and solar panels, to address cutthroat competition and possibly initiate further industrial capacity reductions.
Despite these challenges, China's economy slowed less than expected in the second quarter, showing some resilience against external pressures such as U.S. tariffs. Analysts suggest that government efforts, including trade-in programs akin to "cash for clunkers," might help ease fierce price competition and stimulate consumer demand, potentially improving industrial profits in the future.
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