China's industrial profits fell 0.3% in the first two months of 2025, reflecting ongoing economic challenges, including deflationary pressure and escalating trade tensions with the U.S. This follows a 3.3% decline in 2024, marking the third consecutive annual contraction. December had seen an 11% profit rebound, but the early 2025 figures suggest persistent struggles for businesses.
The National Bureau of Statistics (NBS) attributed the decline to a complex external environment, with firms facing operational difficulties. U.S. tariffs have pressured Chinese exporters, forcing price reductions to remain competitive. The automotive sector saw an 8% profit drop in 2024, while the mining industry experienced a steep 25.2% decline in early 2025.
Despite challenges, state-owned enterprises recorded a 2.1% profit increase in the first two months, while foreign-invested firms saw a 4.9% rise. The manufacturing and utilities sectors also showed growth, with profits increasing by 4.8% and 13.5%, respectively. However, private-sector companies faced a 9% decline.
China’s government has ramped up stimulus efforts, expanding consumer trade-in programs and equipment upgrades to support industrial recovery. Analysts from Morgan Stanley and HSBC have raised GDP growth forecasts to around 4.8%, though risks from tariffs and a weakened property market remain.
Retail sales rose 4% in early 2025, indicating some consumer recovery, but fixed asset investment and industrial output grew slower than anticipated. Exports, which contribute significantly to GDP, showed signs of weakening due to preemptive stockpiling ahead of new tariffs.
Inflation concerns persist, with the consumer price index slipping into negative territory in February, reflecting cautious household spending amid the real estate downturn. Additionally, unemployment reached a two-year high of 5.4%, with youth joblessness hitting 16.9%.
With China targeting 5% economic growth in 2025, policymakers may introduce further stimulus to counter external pressures and sustain domestic demand.