China’s Industrial Profits Slide in June Amid Deflation and Weak Demand

China’s industrial profits fell 4.3% year-on-year in June, marking continued pressure on manufacturers as persistent deflation and sluggish domestic demand weigh on margins. The drop followed a 9.1% decline in May, with first-half profits down 1.8% compared to a 1.1% fall from January to May, according to data from the National Bureau of Statistics.

Despite China’s economy showing resilience to U.S. tariffs in the second quarter, intense price wars—especially in sectors like autos and solar panels—have prompted Beijing to pledge stricter regulations and potential capacity cuts to stabilize competition. Factory-gate prices, a key indicator of producer inflation, plunged to their lowest in nearly two years in June, highlighting mounting deflationary pressures and overcapacity concerns.

State-owned enterprises were hit hardest, posting a 7.6% profit decline in the first half of 2025, while private companies saw a 1.7% increase and foreign firms gained 2.5%. Analysts, including Soochow Securities’ chief economist Lu Zhe, expect government trade-in programs and measures to curb excessive price cutting to gradually improve profitability and boost consumer demand, though recovery is unlikely to mirror past rapid rebounds due to structural challenges like job losses.

Chinese authorities have emphasized the need to develop a “unified national market” and promote high-quality industrial growth as they navigate a complex global trade environment. The profit figures include companies with annual revenues exceeding 20 million yuan ($2.8 million).

This latest data underscores Beijing’s urgent need to balance economic stabilization with long-term reforms, as ongoing deflation threatens to erode corporate earnings and investment sentiment across the manufacturing sector.