China’s industrial profits keep shrinking in June as price wars take a toll

Beijing’s manufacturers remain under stress. Industrial profits in China fell once again in June, official data showed, with persistent deflationary pressures and intense price competition dragging down margins. The numbers reflect the uphill battle Beijing faces in reviving business sentiment amid weak demand at home and continued trade tensions with the United States.

Industrial profits fall again

According to China’s National Bureau of Statistics (NBS), industrial profits dropped 4.3 per cent year-on-year in June, following a 9.1 per cent decline in May. Over the first half of 2025, profits were down 1.8 per cent, compared to a 1.1 per cent slide from January to May, as per Reuters.

The continued slump signals that even though the Chinese economy has shown resilience in the second quarter, posting a better-than-expected GDP reading, corporate earnings remain vulnerable, especially in key sectors like autos, solar, and heavy manufacturing.

What’s dragging the profits down?

The primary culprit: entrenched producer price deflation. Factory-gate prices have been falling for months, and in June, deflation deepened to the worst levels in nearly two years. With overcapacity and discount wars among companies worsening the situation, many businesses are selling below cost just to maintain market share.

“China must deepen the formation of a unified national market, expand and strengthen domestic circulation and promote high-quality development of the industrial economy,” said Yu Weining, a senior statistician at the NBS, in a statement quoted by Reuters.

Beijing’s response

In response to the crisis, Chinese authorities have vowed to tighten regulation across industries accused of unsustainable price-cutting, particularly autos and solar panels. Earlier this month, China’s leadership promised to ramp up efforts to rein in “self-destructive” pricing.

Lu Zhe, chief economist at Soochow Securities, told Reuters that a combination of regulatory tightening and a new “cash-for-clunkers”-style trade-in scheme could help boost demand and curb the ongoing price war.

Heavy losses for state firms, glimmer for private players

The official data paints a stark contrast in corporate performance. State-owned enterprises recorded a 7.6 per cent decline in profits in the first half of 2025. By contrast, private companies saw profits rise 1.7 per cent, while foreign-invested firms posted a 2.5 per cent increase, according to the NBS.

However, the pain is evident across big names. State-run automakers like Guangzhou Automobile Group and JAC Group are reportedly bracing for record second-quarter losses, underlining the depth of the crisis in China’s industrial heartland.

Structural reforms, but limited room for quick fixes

While the government is exploring supply-side reforms, similar to those that helped stabilise the economy a decade ago, analysts say this time the recovery could be slower. Unlike the last cycle, China now faces tougher global conditions and rising unemployment risks at home.

Industrial profit data includes large firms with annual revenue above 20 million yuan ($2.8 million) from core operations. As of now, there’s no official timeline for broader stimulus, though Beijing is under growing pressure to act decisively ahead of key political events later this year.

(With inputs from the agencies)