China's industrial companies are facing a challenging period as their profits have declined at the fastest rate in over a year. This concerning trend is attributed to President Xi Jinping's economic plans struggling to counter the adverse effects of excessive industrial production and weak consumer confidence. According to the National Bureau of Statistics, the profits of industrial companies with annual revenues exceeding 20 million yuan (approximately $2.8 million) fell by 13.1% in November compared to the same period last year, down from a decline of 5.5% in October. This drop has led to a reduction in profit growth since the beginning of the year to just 0.1% compared to the same period in 2024, after growth during the period from January to October was 1.9%.
The Chinese economy has been grappling with the absence of long-term growth drivers following the collapse of the debt-fueled real estate sector, which is now entering its fifth year of crisis, according to the Financial Times. While China has relied on low-cost goods exports to support overall growth, the world's second-largest economy has faced negative inflationary pressures, weak domestic demand, and declining investment, with the producer price index remaining in negative territory for three consecutive years. Recent factory data highlights the challenge facing policymakers in boosting confidence among businesses and consumers, despite a truce in the trade war between China and the U.S. and growth in advanced technological exports.
Yu Wening, the chief statistician at the National Bureau of Statistics, stated that the Chinese economy faces "pressures of structural adjustment" as it transitions from old to new growth drivers, adding that the international environment is also characterized by "many unstable and uncertain factors." The central government in Beijing has long resisted calls from economists both domestically and abroad to launch large-scale stimulus packages and implement deep social security reforms to bolster morale and stimulate the economy. In addition, authorities have intensified their focus on what they term "ni guan," or "competitive absorption," referring to excessive industrial competition that is seen as partly responsible for the production surplus leading to price reductions.
President Xi Jinping has urged officials to act with greater urgency to address the issue of weak domestic demand. He emphasized that "Expanding domestic demand is related to both economic stability and economic security; it is not a temporary measure but a strategic step." Xi also renewed calls for officials and companies to exercise greater discipline in investments, following previous criticisms of excessive industrial investment, which has led to fierce price wars and unfair treatment of suppliers. The latest data from the National Bureau of Statistics highlighted some bright spots in China's manufacturing sector, with high-tech manufacturing and the automotive industry achieving annual growth rates of 10% and 7.5%, respectively.
