China’s industrial profits rebounded sharply in August, ending three months of decline as government efforts to reduce overcapacity and curb price wars began to show results. The National Bureau of Statistics reported a 20.4% rise in industrial profits compared with August 2024, marking the largest increase since November last year.
This recovery was helped by a low base last August, when profits fell sharply, prompting Beijing to introduce stimulus measures and policies aimed at stabilising prices. Producer price falls eased to their slowest in four months, with Tommy Xie of OCBC Bank noting, “The recovery of PPI thanks to China’s anti-involution push showed that it has led to the marginal improvement of the profit.”
Industrial output growth, however, slowed to 5.2% in August, the weakest in a year, with ongoing challenges in the housing market and the labour sector continuing to dampen consumer demand. Retail sales growth has also slowed for the third straight month, and the consumer price index slipped back into negative territory.
Profit growth was uneven across sectors. Upstream industries such as steel and non-ferrous metals saw profits surge, supported by rising prices and demand, while downstream sectors like electric vehicles and solar panels faced falling demand despite price rises. State-owned enterprises saw a 50% profit increase year on year, outperforming private firms.
Tommy Xie warned that without stronger demand, gains upstream might come at the expense of mid- and downstream sectors, predicting further fiscal support worth up to 1 trillion yuan for strategic industries.
China’s drive to reduce inefficient competition and excess capacity continues amid external pressures such as U.S. tariffs, with industrial profit margins falling to two-decade lows. The Economist Intelligence Unit noted that restructuring overcapacity sectors is underway and will be a priority in the upcoming five-year plan.
Capacity utilisation dropped to 74% in the second quarter, the lowest since early 2024. Beijing is also boosting domestic demand through subsidies encouraging consumer upgrades and expanding childcare support.
Officials are opting for a gradual consolidation to minimise disruption, reflected in reduced output targets for key metals like copper and aluminium. China’s September purchasing managers’ index, due before the Golden Week holiday, will offer fresh insights into the industrial sector’s outlook.