^{Photo: Bloomberg.com}

China’s industrial sector finally turned a corner in 2025, with factory profits edging higher for the first time in three years as Beijing moved to curb destructive price wars and companies increasingly looked overseas for growth.

Official data shows that profits at major industrial firms rose 0.6% year over year in 2025, ending a prolonged downturn driven by weak consumer demand, excess capacity, and intense competition across key industries. While the rebound was modest, it marked a clear shift in momentum after three consecutive annual declines.

The pace of recovery strengthened toward the end of the year. Profits in December jumped 5.3% from a year earlier, the strongest monthly gain since September, when earnings surged more than 21%. This followed sharp drops in October and November, highlighting just how uneven the recovery has been.

Economists say the turnaround reflects a mix of policy support and corporate adaptation.

Beijing’s campaign to rein in aggressive price cutting, often referred to as its “anti-involution” drive, helped stabilize margins in several sectors. At the same time, many Chinese manufacturers pushed harder into overseas markets to offset sluggish domestic sales.

Factory activity also returned to expansion in December after eight straight months of contraction, helped in part by pre-holiday stockpiling ahead of the Lunar New Year, providing a short-term boost to output and earnings.

Policy support and overseas expansion drive the rebound

The improvement followed a slow start to the year, with profits up just 0.1% in the January-to-November period before accelerating in December.

Analysts attribute much of the recovery to government intervention aimed at cooling ruinous price competition, alongside efforts by companies to diversify revenue streams through exports and international expansion.

China’s headline economic growth reached the official target of around 5% in 2025, supported by strong export performance as a temporary U.S.-China trade truce helped keep higher tariffs at bay. Industrial output expanded 5.9% over the year, outpacing retail sales growth of 3.7%, underscoring the continued imbalance between production and consumer spending.

Despite these gains, economists caution that profitability remains fragile, especially as domestic demand has yet to regain strong momentum.

Sharp contrasts across industries

Beneath the headline improvement, sector performance varied widely.

Manufacturing and utilities delivered solid gains, with profits rising 5% and 9.4%, respectively. In contrast, the mining sector suffered a steep 26.2% decline, reflecting weaker commodity prices and softer demand.

Some industries posted standout growth:

• Ferrous metal smelting and rolling processing saw profits jump 22.6%
• Electronics manufacturing recorded a 19.5% increase
• Railway equipment, shipbuilding, aerospace, and electronics all achieved double-digit profit growth

High-tech and smart manufacturing emerged as major bright spots. Profits at smart consumer electronics makers surged 48%, while unmanned aerial vehicle manufacturing soared 102%. Intelligent in-car appliance producers also reported strong momentum, with profits rising nearly 89%.

On the downside, traditional energy sectors continued to struggle. Coal mining and washing profits plunged 41.8%, while oil and gas extraction dropped 18.7%, reflecting both pricing pressures and structural shifts in energy demand.

Ownership structure also mattered. Profits at state-owned enterprises declined 3.9% over the year, while foreign-funded companies, including those backed by investors from Hong Kong, Macau, and Taiwan, posted a 4.2% increase, suggesting stronger performance among more market-driven firms.

Economists note that this divergence highlights the uneven nature of China’s recovery, with advanced manufacturing and export-oriented businesses outperforming legacy sectors.

Weak consumption still weighs on broader recovery

Despite the rebound in industrial profits, domestic consumption remains a key concern.

Retail sales grew just 3.7% in 2025, lagging both overall economic growth and industrial output. This gap points to cautious household spending and lingering confidence issues, even as factories ramped up production.

Chinese officials have acknowledged these challenges. The Commerce Ministry said this week that Beijing will intensify efforts to stimulate household spending, particularly on big-ticket items such as cars, home appliances, and consumer electronics. Authorities are also aiming to boost services consumption, including tourism, dining, and entertainment.

These measures are part of a broader push to rebalance growth toward domestic demand and reduce reliance on exports and industrial investment.

Outlook remains cautious despite improving profits

While the return to profit growth offers some relief, analysts warn that the recovery is still in its early stages.

Price competition continues to squeeze margins in many industries, and external factors such as global economic conditions and trade tensions remain critical risks. Beijing’s campaign against excessive price cutting is expected to help gradually, but most economists agree it will take time for its full impact to be felt.

For now, China’s industrial sector is showing signs of stabilization, powered by high-tech manufacturing and policy support. But with mining in retreat and consumer spending subdued, the broader economy still faces a delicate balancing act as policymakers work to sustain growth and rebuild confidence in 2026 and beyond.

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